Farming has always been a risky endeavor, and farmers have always had to manage risk as a part of doing business. Over the years, the federal government has played an active role in several ways to help mitigate the effects of production losses and low prices on farm income. For example, USDA's Risk Management Agency (RMA) administers the federal crop insurance program to protect farmers against major production losses. Under this program, RMA subsidizes the federal multiple-peril crop insurance program, which allows insured farmers to receive an indemnity payment if production falls below a certain level. In addition, to help protect farmers against the risk of low crop prices, USDA's Farm Service Agency administered price- and income-support programs for farmers who grew certain crops--corn, wheat, grain sorghum, barley, oats, cotton, and rice. The 1996 farm bill changed the government's role. It replaced the income- support programs with "production flexibility contracts" that provide for fixed but declining annual payments to participating farmers from 1996 through 2002. These government payments--known as transition payments--are not tied to market prices, and participating farmers are not restricted with regard to the type or amount of crops that they plant, as they were in the earlier programs. Furthermore, unlike the deficiency payments of the last 6 decades, the transition payments do not rise in years when crop prices are low, nor do they fall in years when prices are high. As shown in table 1, the 1996 farm bill specified that transition payments would total about $36 billion over the 7-year period, declining from about $5.6 billion in 1996 to about $4 billion in 2002. By giving farmers increased flexibility in deciding which crops to plant, the 1996 farm bill allows them to choose the particular crop or combination of crops that they believe offers the best chance to maximize their profits and offset the decline in income resulting from lower government payments. However, the increased flexibility in planting decisions brings other risks. For example, small increases in expected profits may lead many farmers to decide to increase the acreage devoted to a particular crop. This, in turn, could result in the increased production of the crop nationwide and ultimately in lower prices as a result of the greater supply. Section 192 of the 1996 farm bill required that USDA, in consultation with the Commodity Futures Trading Commission (CFTC), educate farmers in managing the financial risks inherent in producing and marketing agricultural commodities. The act specified that, as a part of such education activities, USDA may develop and implement programs to assist and train farmers in using (1) forward contracts, which enable farmers to lock in a price for their crop or livestock production prior to harvest or slaughter, (2) crop insurance, which ensures compensation if crop yields are substantially lower than expected, and (3) hedging--buying or selling futures or options contracts on a commodity exchange, such as the Chicago Board of Trade--which reduces the risk of receiving lower prices for crops or livestock. The act authorized USDA to use its existing research and extension authorities and resources to implement this provision. In March 1997, the Secretary of Agriculture organized a steering committee to direct the government's education activities for managing agricultural risk. The steering committee is chaired by RMA's administrator and includes a CFTC commissioner; the administrator of USDA's Cooperative State Research, Education, and Extension Service (CSREES); and the director of USDA's National Office of Outreach. These agencies have different responsibilities. RMA primarily administers the federal crop insurance program; the 1996 farm bill expanded its authority to include a broader risk management perspective. CFTC, which regulates commodity futures and options trading in the United States, also develops and maintains research and informational programs concerning futures and options trading for farmers, commodity market users, and the general public. CSREES develops and conducts agricultural research, higher education, and extension programs to provide education and technical assistance to farmers and the general public. USDA's National Office of Outreach is responsible for ensuring that information, technical assistance, and training are available to all USDA customers, with an emphasis on underserved populations. USDA's 1996 Agricultural Resource Management Study (Phase 3), based on a statistical sample of farmers, found that about 42 percent of the nation's 2 million farmers used at least one of the risk management tools--forward contracts, crop insurance, or hedging--to manage their income risk. In 1996, a substantially greater percentage of farmers with agricultural sales of at least $100,000 (large-scale farmers) used each risk management tool than did farmers whose agricultural sales were less than $100,000 (small- scale farmers). Similarly, a greater percentage of farmers whose primary crops were corn, wheat, or cotton purchased crop insurance and used forward contracts than did farmers who grew other field crops. (App. II provides detailed data on farmers' use of risk management tools by sales level, commodity, geographic region, and the receipt of USDA transition payments.) Table 2 shows that, among all U.S. farmers, a substantially greater percentage of large-scale farmers used each risk management tool than did small-scale farmers in 1996. Among large-scale farmers, at least 52 percent purchased crop insurance, at least 55 percent used forward contracts, and at least 32 percent engaged in hedging. In contrast, no more than 16 percent of small-scale farmers purchased crop insurance, no more than 29 percent used forward contracts, and no more than 22 percent engaged in hedging. Available data were insufficient to determine whether large-scale farmers hedged with futures or options contracts to a greater extent than small-scale farmers in 1996. Table 3 shows that at least 70 percent of those large-scale farmers who received transition payments purchased crop insurance, at least 66 percent used forward contracts, and at least 34 percent engaged in hedging in 1996. However, the minimum extent of usage was even greater among farmers who had more than $500,000 in sales and received transition payments--at least 73 percent purchased crop insurance, at least 78 percent used forward contracts, and at least 50 percent engaged in hedging in 1996. As table 4 shows, among all U.S. farmers, a greater percentage of those whose primary crop was corn, wheat, or cotton purchased crop insurance and engaged in forward contracting than did farmers who grew other field crops or raised livestock in 1996. Among farmers who primarily grew corn, wheat, and cotton, at least 54 percent purchased crop insurance and at least 50 percent used forward contracts. In contrast, among farmers who primarily raised other field crops, 43 percent at most purchased crop insurance and 45 percent at most used forward contracts. In addition, hedging was used by at least 35 percent of cotton farmers, which was a higher percentage than for farmers who grew other field crops in 1996. However, available data were insufficient to determine whether corn and wheat farmers engaged in hedging with futures or options contracts to a greater extent than did farmers who primarily raised other crops or livestock. Table 5 shows that, among corn farmers who received transition payments, at least 54 percent purchased crop insurance, at least 61 percent used forward contracts, and at least 31 percent engaged in hedging in 1996. Among wheat farmers who received transition payments, at least 81 percent purchased crop insurance, at least 46 percent used forward contracts, and at least 15 percent engaged in hedging. Among cotton farmers who received transition payments, at least 88 percent purchased crop insurance, at least 59 percent used forward contracts, and at least 25 percent engaged in hedging. To prepare farmers for managing their risks, USDA has focused primarily on developing regional or state partnerships of government, university, and private organizations to foster a risk management educational program. The university partners developed and implemented a series of regional and local risk management conferences targeted initially at groups that influence farmers--bankers, crop insurance agents, grain elevator operators, and agricultural educators. USDA expects that these individuals will provide farmers with specific information for using risk management tools as the program continues. During fiscal year 1998, USDA also awarded 17 grants for risk management education projects, provided funding to land grant universities to promote additional risk management education efforts, and funded the development of an electronic risk management education library. In fiscal year 1998, USDA obligated $5 million of RMA's $10 million for crop insurance research to RMA's risk management education initiatives-- amounting to about $2.50 per U.S. farmer. These funds were the predominant source of risk management education funding within USDA. In comparison, a CSREES official told us that CSREES typically obligates only about $100,000 per year, primarily for specific risk management education projects. The official noted that land grant universities may also use a portion of their general CSREES education funding to support risk management education projects; however, the amount that universities spent in fiscal year 1998 is not known. For fiscal year 1999, USDA has allocated $1 million of RMA's $3.5 million for crop insurance research to risk management education. In response to the 1996 farm bill's requirement that it educate farmers about managing their production and marketing risks, USDA used a September 1997 national risk management education summit to initiate a series of 20 national and regional risk management education conferences. USDA's conferences focused on developing partnerships with "third-party influencers" in an effort to leverage the available government funds to train those who are in a position to educate farmers on risk management tools. According to USDA's director of risk management education, the training would enable third-party influencers to demonstrate to farmers how the various tools fit together in an overall risk management and marketing plan. These individuals interact frequently with farmers and are in a position to influence the risk management decisions farmers make. For example, land grant college or extension service educators provide various training and advisory services to farmers on both the production and business aspects of farming. Crop insurance agents meet with farmers several times during the year as the farmers decide on insurance coverage levels and provide the agents with information on acres planted and final crop production levels. The bank or farm credit services loan officers meet with farmers to discuss business plans and arrange for operating loans. Commodity brokers interact with farmers who choose to engage in hedging with futures or options. Farmers interact with grain elevator operators when they sell their crops on either a cash or forward contract basis. According to RMA, the conferences helped participants to gain information and knowledge about areas outside their own expertise. For example, commodity brokers learned more about crop insurance, and crop insurance agents learned more about the futures market. As of December 1998, USDA's major conferences had reached a relatively small percentage of the target groups' members. Table 6 shows that 335 (2 percent) of about 15,000 crop insurance agents in the United States had attended a USDA-sponsored risk management conference. Similarly, only 251 bankers and 96 grain elevator operators had attended the conferences, although there are about 3,200 agricultural banks and about 10,000 grain elevators in the United States. About 20 percent of the conference attendees were USDA or other government agency employees, rather than members of the groups influencing farmers. Conference speakers generally presented broad, overview information about a number of farm management areas without providing detailed information addressing specific problems in any single area. According to RMA officials, providing overview information was appropriate because it enabled participants to appreciate how their specialty area interacts with other areas for the benefit of farmers. USDA also expanded the scope of the conferences to discuss more than the two risk areas that the 1996 farm bill had identified--producing and marketing agricultural commodities. Sections of the conferences also addressed tools for reducing financial risks, legal risks, and human resource risks, in addition to tools for reducing production and marketing risks. RMA officials noted that financial, legal, and human resource risks are also significant concerns for farmers. RMA officials consider the risk management conferences to be a first step in developing regional and state partnerships with USDA, universities, and private organizations to provide risk management education to farmers. USDA has designated five land grant university educators as regional coordinators of its risk management education program. (App. III identifies, for each region, the coordinator's university affiliation, the associated RMA regional service offices, and the states covered.) The regional coordinators are responsible for (1) working with private sector partners, including bankers, crop insurance company representatives, and farmer organizations, to develop regional and local conferences, meetings and other training efforts and (2) serving as a focal point for providing information about the risk management education opportunities in each region. State and local educational activities, training sessions, and events sponsored by these partnerships have begun to reach additional farmers and individuals who influence farmers' decisions. In fiscal year 1998, USDA spent $1.5 million to support the risk management conferences and initiate regional partnerships, including about $300,000 for the conferences, $250,000 for publications and materials, $133,000 for the regional coordinating offices, and $45,000 for an evaluation project. USDA also spent about $350,000 for special outreach projects designed to enhance the risk management skills of small and minority producers in areas described as underserved by traditional risk management tools and $50,000 to sponsor a Future Farmers of America essay contest on risk management. In addition to sponsoring conferences and developing regional partnerships, USDA awarded a series of risk management education and research grants totaling $3 million. In February 1998, USDA issued a request for proposals in the Federal Register. Subsequently, a peer review team, working under the risk management education steering committee, evaluated 107 proposals requesting over $19 million. In June 1998, USDA awarded 17 risk management education grants, ranging from $19,172 to $250,000, and averaging about $178,000. USDA awarded 12 grants to land grant colleges and universities, 3 to other educational entities, 1 to a crop insurance industry organization, and 1 to a grain elevator industry organization. Most of the grants included additional public and private sector partners who agreed to participate in the projects with the primary grantees. With expected project completion dates ranging from the summer of 1999 through the fall of 2001, the projects are currently ongoing, and thus, in many cases, the training phase has not begun. The grant projects target diverse audiences--ranging from farmers with limited resources, farmers growing specific commodities in individual states or regions, and dairy farmers to crop insurance agents and grain elevator operators across the country--and were for diverse purposes. For example, the grantees focused on different geographic coverages: seven planned national coverage, four targeted regional audiences, and six directed their efforts in a single state. Similarly, some of the grantees focused on particular groups: four targeted limited resource or minority farmers, one focused on the risk management needs of citrus farmers, and one focused on dairy farmers. Typically, the projects focused on training, including a curriculum development phase, a "train the trainer" phase, and a series of seminars or workshops. However, two grants provided for research about farmers' use of and need for risk management tools. (App. IV provides information about the grantees, grant amount, and objectives for each of the 17 grants.) As a third element of its risk management education initiative in fiscal year 1998, USDA provided $362,000, divided among 96 land grant colleges and universities, to promote and augment their risk management education programs. According to USDA, these funds enabled the cooperative extension system to reach farmers during the winter of 1998-99 with a substantial risk management curriculum, including (1) regional video teleconferences, (2) small producer workshops at the local level, and (3) fact sheets, teaching guides, and classroom visual aids adapted to agricultural conditions in a particular state. In the fourth part of its response to the legislative mandate, USDA entered into a $200,000 contract with the University of Minnesota to develop an Internet website that provides an electronic library of risk management education materials. As of January 1999, the website contained over 700 risk management publications, presentations, decision aids, and other materials either resident on the site or linked to it. This information is useful to farmers as well as to the groups that influence them. On average, about 60 individuals per day made use of the website in January 1999. We provided the U.S. Department of Agriculture with a draft of this report for review and comment. We met with Agriculture officials, including the Administrator of the Risk Management Agency, who stated that the agency agreed with the report and that the report was balanced and accurate. However, the Department believed that the report should (1) provide more detailed information on how the $5 million for risk management education initiatives was spent, (2) discuss the Risk Management Agency's regional and local risk management conferences in the context of its broader effort to establish public and private partnerships, and (3) discuss the Risk Management Agency's efforts to provide risk management education through land grant universities as a separate initiative. We revised the report to more fully identify the various education initiatives that the Risk Management Agency has funded, explain that one of the purposes of the agency's conferences was to foster public-private partnerships, and identify the support for the outreach efforts of land grant universities as a separate initiative. In addition, the Department provided comments to improve the report's technical accuracy, which we incorporated as appropriate. To determine the extent to which various groups of farmers have used risk management tools, we obtained national agricultural survey data from USDA's Agricultural Resource Management Study (Phase 3) for 1996-- formerly called the Farm Costs and Returns Survey. The 1996 survey, based on a statistical sample, provides the most current, comprehensive data on farmers' use of risk management tools. About 7,300 farmers responded to the risk management questions. The 1997 study did not include specific questions about risk management strategies because it was designed to accommodate questions required by the 1997 agricultural census. USDA's Economic Research Service, which recently published an analysis of the 1996 survey data, provided the statistical data for this report. To identify education programs and projects USDA has directed or initiated to prepare farmers for managing risk, we interviewed and obtained documentation from USDA headquarters and regional officials, as well as from regional risk management coordinators. To determine the groups or individuals who have participated in or been served by these programs, we interviewed and obtained documentation from cognizant USDA officials, academicians, and other private sector organizations involved in planning and carrying out risk management seminars and other educational and research efforts. We also interviewed representatives of farmer organizations about RMA's approach. We performed our work from June 1998 through February 1999 in accordance with generally accepted government auditing standards. We did not, however, independently verify data obtained from USDA officials and documents. USDA's Agricultural Resource Management Study data are the only comprehensive data available that examine farmers' use of risk management tools. We are sending copies of this report to Representative Larry Combest, Chairman, House Committee on Agriculture, and appropriate congressional committees. We are also sending copies to the Honorable Dan Glickman, the Secretary of Agriculture; the Honorable Jacob Lew, Director, Office of Management and Budget; and other interested parties. We will also make copies available upon request. Please contact me at (202) 512-5138 if you or your staff have any questions about this report. Major contributors to this report are Richard Cheston, Mary Kenney, Renee McGhee-Lenart, and Robert R. Seely, Jr. The following are brief explanations of the three risk management tools discussed in our report: Crop insurance: Protects participating farmers against the financial losses caused by events such as droughts, floods, hurricanes, and other natural disasters. Federal crop insurance offers farmers two primary types of insurance coverage. The first--called catastrophic insurance-- provides protection against the extreme losses of crops for the payment of a $60 processing fee, whereas the second--called buyup insurance-- provides protection against the more typical smaller losses of crops in exchange for a premium paid by the farmer. Forward contract: A cash market transaction in which two parties agree to buy or sell a commodity or asset under agreed-upon conditions. For example, a farmer or rancher agrees to sell, and a local grain elevator or packing plant agrees to buy, the commodity or livestock at a specific future time for an agreed-upon price or on the basis of an agreed on pricing mechanism. With this agreement, a farmer locks in a final price for a commodity prior to harvest or slaughter. Hedging: The purchase or sale of a futures contract or an option on an organized exchange, such as the Chicago Board of Trade. A hedge is a temporary substitute for an intended subsequent transaction in the cash market to minimize the risk of an adverse price change. For example, corn farmers interested in locking in the sale price of all or part of their crops would sell corn futures as a temporary substitute for the cash market sale they intend to make at a later date. The sales transaction is carried out through a commodity broker. More specifically: Futures contract: An agreement for the purchase or sale of a standardized amount of a commodity, of standardized quality grades, during a specific month, on an organized exchange and subject to all terms and conditions included in the rules of that exchange. Option: The right, but not the obligation, to buy or sell a specified number of underlying futures contracts or a specified amount of a commodity, currency, index, or financial instrument at an agreed- upon price on or before a given future date. Other tools are also available to help farmers manage their risks. For a brief discussion of these tools, see "Risk Management: Farmers Sharpen Tools to Confront Business Risks," Agricultural Outlook, March 1999. This appendix provides detailed information that we obtained from the U.S. Department of Agriculture's (USDA) Economic Research Service concerning farmers' use of risk management strategies. This information is based on the 1996 Agricultural Resource Management Study; about 7,300 farm operators responded to the risk management questions. Using the data the Service provided, we calculated confidence intervals. The Economic Research Service's estimates and associated confidence intervals are presented in tables II.1 through II.12. Confidence interval (Dollars in millions) Agricultural sales(Dollars in millions) Defined as operator has household income under $20,000, farm assets under $150,000, and gross farm sales under $100,000. Defined as operator's primary occupation is retired. Defined as operator's primary occupation is "other"--neither farming nor retired. Defined as operated by nonfamily corporations, cooperatives, or hired managers. Confidence interval (Range) Confidence interval (Range) Confidence interval (Range) 19-29 (1)-19Defined as operator has household income under $20,000, farm assets under $150,000, and gross farm sales under $100,000. The operator's primary occupation is retired. The operator's primary occupation is "other"--neither farming nor retired. Operated by nonfamily corporations, cooperatives, or hired managers. Confidence interval (Dollars in millions) Agricultural sales(Dollars in millions) 100,034 (1,117) $4,510.8 ($63.2) Defined as operator has household income under $20,000, farm assets under $150,000, and gross farm sales under $100,000. Confidence interval calculations are not exact because of the small sample size or other characteristics of the sample results. Defined as operator's primary occupation is retired. Defined as operator's primary occupation is "other"--neither farming nor retired. Defined as operated by nonfamily corporations, cooperatives, or hired managers. Confidence interval (Range) Confidence interval (Range) Confidence interval (Range) 36-56 (14)-4418-42 (9)-31Defined as operator has household income under $20,000, farm assets under $150,000, and gross farm sales under $100,000. USDA is required to protect the privacy of respondents by withholding data if it receives too few responses in a particular category. Defined as operator's primary occupation is retired. Defined as operator's primary occupation is "other"--neither farming nor retired. Defined as operated by nonfamily corporations, cooperatives, or hired managers. Confidence interval (Dollars in millions) Agricultural sales(Dollars in millions) Table II.6: Percentage of Farmers Who Used Each Risk Management Tool, by Principal Commodity, 1996 Confidence interval (Range) Confidence interval (Range) Table II.7: Number of Farmers Who Received Transition Payments and the Value of Their Agricultural Sales, by Principal Commodity, 1996 Confidence interval (Dollars in millions) Agricultural sales(Dollars in millions) (1,605) $4,470.5 Table II.8: Percentage of Farmers Who Used Each Risk Management Tool Among Those Who Received Transition Payments, by Principal Commodity, 1996 Confidence interval (Range) Confidence interval (Range) Confidence interval (Range) USDA is required to protect the privacy of respondents by withholding data if it receives too few responses in a particular category. Confidence interval (Dollars in millions) Agricultural sales (Dollars in millions) $7,707.4 ($38.8) Includes Kansas, Nebraska, North Dakota, and South Dakota. Includes Illinois, Indiana, Iowa, Missouri, and Ohio. Includes Michigan, Minnesota, and Wisconsin. Includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. Includes California, Oregon, and Washington. Includes Kentucky, North Carolina, Tennessee, Virginia, and West Virginia. Includes Alabama, Florida, Georgia, and South Carolina. Includes Arkansas, Louisiana, and Mississippi. Includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Includes Oklahoma and Texas. Confidence interval (Range) Confidence interval (Range) Confidence interval (Range) Includes Kansas, Nebraska, North Dakota, and South Dakota. Includes Illinois, Indiana, Iowa, Missouri, and Ohio. Includes Michigan, Minnesota, and Wisconsin. Includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. Includes California, Oregon, and Washington. Includes Kentucky, North Carolina, Tennessee, Virginia, and West Virginia. Includes Alabama, Florida, Georgia, and South Carolina. Includes Arkansas, Louisiana, and Mississippi. Includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Includes Oklahoma and Texas. Confidence interval (Dollars in millions) Agricultural sales(Dollars in millions) 9,632 (2,845) $2,962.3 ($1,145.3) Includes Kansas, Nebraska, North Dakota, and South Dakota. Includes Illinois, Indiana, Iowa, Missouri, and Ohio. Includes Michigan, Minnesota, and Wisconsin. Includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. Includes California, Oregon, and Washington. Includes Kentucky, North Carolina, Tennessee, Virginia, and West Virginia. Includes Alabama, Florida, Georgia, and South Carolina. Includes Arkansas, Louisiana, and Mississippi. Includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Confidence interval calculations are not exact because of the small sample size or other characteristics of the sample results. Includes Oklahoma and Texas. Confidence interval (Range) Confidence interval (Range) Confidence interval (Range) 42-84 (7)-7141-73 (32)-9067-87 (32)-82Includes Kansas, Nebraska, North Dakota, and South Dakota. Includes Illinois, Indiana, Iowa, Missouri, and Ohio. Includes Michigan, Minnesota, and Wisconsin. Includes Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming. Includes California, Oregon, and Washington. Includes Kentucky, North Carolina, Tennessee, Virginia, and West Virginia. Includes Alabama, Florida, Georgia, and South Carolina. Includes Arkansas, Louisiana, and Mississippi. Includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Includes Oklahoma and Texas. Cognizant RMA regional service office(s) Integrated Risk Management Education ($248,461) Grantee: South Central Technical College (North Mankato, Minnesota) The objective of this project is to develop an integrated risk management education curriculum and deliver it via educational programs for farmers in Minnesota, North Dakota, and South Dakota. The project will develop local educational teams of agricultural professionals. Understanding Farmer Risk Management Decision Making and Educational Needs ($243,388) Grantee: Mississippi State University The objective of this project is to develop the knowledge base to guide the design and implementation of effective risk management programs for agricultural producers. The project will identify the risk management objectives of diverse agricultural producers, investigate perceptions and understanding of risk management tools and strategies, examine the factors influencing choices of risk management strategy, and study how information and analysis influence producers' perceptions and risk management choices. Risk Management Education With Focus on Producers and Lender Stakeholders ($250,000) Grantee: Pennsylvania State University The objective of this project is to help farmers and lenders manage risks and expand the understanding of risk management with a focus on farmer liquidity constraints. The project will develop and distribute a risk management curriculum to farmers, provide training and workshops, improve risk management financial expertise with workshop applications tailored to lenders, and use computers and telecommunications in risk management education. Managing Risks and Profits for the National Grain Industry: A Whole-Farm Approach ($72,180) Grantee: Ohio State University Extension Service The objective of this project is to create and deliver information and analytical tools to help grain farmers and agribusinesses manage their risks and profits for entire farms. The project will create and revise risk management programs for whole-farm assessment, analyze profit levels and cash-flow risks, create a risk management center at Iowa State University, measure the risk tolerance of farm operators, and analyze the effectiveness of innovative information delivery systems. National Program for Integrated Dairy Risk Management Education and Research ($129,600) Grantee: Ohio State University The objective of this project is to focus public and private expertise on generating understandable, useful, and results-oriented knowledge and tools for the dairy industry. The project will develop a risk management educational curriculum for dairy producers, conduct symposia and regional training workshops, develop relevant computer software, and distribute information electronically. Optimal Grain Marketing: Integrated Approach to Balance Risks and Revenues ($232,800) Grantee: National Grain and Feed Foundation The objective of this project is to develop information on commonly available risk management tools coupled with an assessment of how such tools can be expected to perform. The project will reach 500 elevator operators and 20,000 farmer customers with a standardized methodology for evaluating new products, with an emphasis on the use of cash contracts. Agricultural Risk Management Education for Small and Socially Disadvantaged Farmers ($229,808) Grantee: Virginia State University Cooperative Extension Service The objective of this project is to create risk management educational materials and help socially disadvantaged and limited-resource farmers in Virginia, Maryland, Delaware, and North Carolina understand how to manage risk. This project will nurture a partnership between the private crop insurance industry and certain land-grant colleges in the four states, providing a model for similar efforts elsewhere. The project will also integrate risk management education into outreach, training, and technical assistance programs for small-scale farmers. Delivery of Agricultural Risk Management Education to Extension Officers and Small-Scale Farmers ($150,000) Grantee: Alcorn State University The objective of this project is to develop and implement risk management education for students, extension agents, small-scale farmers, limited- resource cooperatives, industry groups, and community-based organizations within 28 Mississippi counties. It will help small-scale farmers limit their exposure to marketing, financial, and legal risks. Georgia Agricultural Risk Management Education Program ($250,000) Grantee: Georgia Department of Education The objective of this project is to train producers and agribusinesses in risk management. The project will train young farmers to provide risk management assistance and provide instructional material and technology to increase managerial skills in agricultural operations. It will provide risk management training for minority, limited-resource farmers, and migrant workers in 134 Georgia counties and establish a certified risk management program for farm workers. Pacific Northwest Risk Management Education Project ($236,339) Grantee: Washington State University The objective of this project is to help Pacific Northwest cereal grain producers improve and apply risk management skills. The project will develop a research-based educational curriculum to increase understanding of risk management tools and integrate areas of risk management in a decision-making process for small grain producers. The project will deliver a producer-oriented risk management program to more than 1,000 grain producers. Risk Management Research and Education for the Florida Citrus Industry ($19,172) Grantee: University of Florida Cooperative Extension Service The objective of this project is to develop appropriate risk management tools and strategies for citrus growers in 32 southern Florida counties. This project will help growers to understand their increased exposure to risk and to use risk management tools and strategies. Risk Management Education: A Risk-Management Club Approach ($150,000) Grantee: Kansas State University The objective of this project is to extend applied risk management information to agricultural producers and agricultural businesses in Kansas. The project will establish local risk management clubs and survey club members to determine risk perceptions, risk management skill levels, and educational needs. It will plan and conduct educational meetings, and carry out follow-up evaluations to measure the effectiveness of the risk management club approach. Leveraging Risk Management Education Using Crop Insurance Agents ($166,500) Grantee: National Crop Insurance Services The objective of this project is to broaden the understanding of risk management principles among more than 15,000 crop insurance agents nationwide. The project will train crop insurance agents in risk management and foster a partnership involving extension specialists, crop insurance agents, and socially disadvantaged and limited-resource farmers. The project will begin a conference series on risk management modeled after one in North Dakota. Economic Performance and Producer Use of Market Advisory Service Products ($250,000) Grantee: University of Illinois Cooperative Extension Service The objective of this project is to provide producers of corn, soybeans, and wheat with an objective, comprehensive evaluation of the economic performance of crop market advisory services. It will describe subscribers' use of market advisory services, current risk management practices, and the educational needs of crop producers. Comprehensive Risk and Business Planning: A Case Plan Approach ($106,841) Grantee: University of Nebraska The objective of this project is to help producers and others in risk management consulting and educational efforts understand comprehensive business planning. Participants will learn to prepare business plans for each commodity to address various situations. The project will encourage producer groups to develop comprehensive risk management and business plans, and will create and maintain an online forum on risk and financial management. Develop AgRisk 2000 ($206,150) Grantee: University of Illinois Cooperative Extension Service The objective of this project is to develop and provide a comprehensive risk management tool that which can be used by farmers, lenders, and service providers to evaluate pre-harvest risk management strategies. The project is targeted at producers located in the Corn Belt, Wheat Belt, Delta Region, and Southern States. Risk Management Education for Limited-Resource Latino Family Farmers in California's Central Coast ($85,000) Grantee: Association for Community Based Education The objective of this project is to improve the risk management skills of limited-resource Latino family farmers in California's central coast. The project will improve the farmers' capacity to understand the risk associated with their business, analyze risks and use information in problem-solving and decision-making, and incorporate risk management education into a small-farm production and management curriculum. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary, VISA and MasterCard credit cards are accepted, also. 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Summary:
Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) efforts to educate farmers about risk management, focusing on: (1) the extent of farmers' use of risk management tools; and (2) educational programs and projects USDA has directed or initiated to prepare farmers for managing risks and determining the groups or individuals who have participated in or been served by these programs. GAO noted that: (1) in 1996, about 42 percent of the nation's 2 million farmers used one or more risk management tools to limit potential income losses resulting from falling market prices or production failures, according to USDA estimates; (2) the use of these tools varied by farmers' level of sales and primary commodity (crop or livestock); (3) the use of crop insurance and forward contracts to reduce risk was more prevalent among farmers: (a) with at least $100,000 in annual sales of agricultural products than among those with annual sales under $100,000; and (b) whose primary crops were corn, wheat, and cotton than among those who primarily grew other crops; (4) of those farmers who received USDA transition payments and had sales of at least $100,000, at least 70 percent purchased crop insurance, at least 66 percent used forward contracts, and at least 34 percent engaged in hedging in 1996; (5) in fiscal year 1998, USDA obligated $5 million for four educational initiatives to prepare farmers for managing risk; (6) to develop government and private sector partnerships to foster risk management education, USDA sponsored a series of risk management conferences targeted at bankers, agricultural educators, crop insurance agents, commodity brokers, and grain elevator operators; (7) however, these initial conferences reached only a relatively small percentage of these target groups' members; (8) USDA intends to use partnerships with private- sector organizations to further expand its educational outreach activities; (9) USDA awarded 17 risk management education and research grants that are primarily designed to develop risk management education curriculums for training such diverse groups as farmers with less than $20,000 in annual income, farmers who grow specific crops in individual states or regions, crop insurance agents, and grain elevator operators across the country; (10) the expected completion dates for these projects range from the summer of 1999 through the fall of 2001; (11) USDA provided funding to supplement land grant universities' risk management education efforts; and (12) USDA contracted with the University of Minnesota to develop an Internet library that, as of January 1999, contained over 700 risk management publications and other education materials for farmers.