Cotton industry behind STAX plan

Regional differences on how best to construct a farm safety net arose during Thursday morning’s Senate Agriculture Committee hearing on risk management and the new farm bill. Even so, following four panels of witnesses, those backing federal crop insurance programs held the loudest bullhorn.

One thing that most witnesses and legislators agreed on – besides the finish of direct payments -- was a dislike of the Supplemental Revenue Assistance Payments (SURE) program which can require farmers wait 18 months for payments following a disaster. Michael Scuse, USDA Undersecretary for Farm and Foreign Agricultural Services, got an earful on the unpopular program from several legislators. Nebraska Sen. Mike Johanns, former Agriculture Secretary during the last Bush administration, said SURE is “very, very flawed.”

For hearing testimony, see here.

Chuck Coley, Georgia cotton farmer and National Cotton Council Chairman, said for cotton producers the “combination of the marketing loan, direct payments and counter-cyclical payments, as structured in the 2008 farm bill, has served the cotton industry extraordinarily well and, in recent years, has required minimal federal outlays. However, deficit reduction efforts are placing unprecedented pressure on the existing structure of farm programs. Deficit reduction will lower the baseline funds available to upland cotton. Yet simply downsizing the current program structure would undermine the effectiveness of the programs to the extent that alternatives need to be evaluated to ensure growers have access to an effective safety net.”

In a statement following the hearing, the NCC stated it “believes a revenue insurance program that supplements existing insurance products would provide an important and affordable tool -- especially given the weather uncertainties and risks that farmers face.”

The NCC says effective risk management would come with the adoption of the Stacked Income Protection Plan (STAX). STAX, “is designed to provide a fiscally responsible and effective safety net for upland cotton producers,” reads Coley’s prepared testimony. “The program will be administered in a manner consistent with current crop insurance delivery systems and is designed to complement existing crop insurance programs. This proposal does not change any features of existing insurance products.

“The STAX plan is designed to address revenue losses on an area-wide basis, with a county being the designated area of coverage. In counties lacking sufficient data, larger geographical areas such as county groupings may be necessary in order to preserve the integrity of the program. The ‘stacked’ feature of the program implies that the coverage would sit on top of the producer’s individual crop insurance product. While designed to complement an individual’s buy-up coverage, a producer would not be required to purchase an individual buy-up policy in order to be eligible to purchase a STAX policy.”

“We have to have access to crop insurance, risk management tools and even emergency assistance programs to survive and recover from these natural disasters,” said Coley. He added that “the availability of effective risk management tools like crop insurance is important even in so-called normal years because cotton producers need to recover a portion of lost revenues if their crop is damaged after they have invested in the inputs, technology and equipment necessary to produce and market a crop. In those areas where cotton growers have not had access to adequate coverage, we want to continue to work with USDA, the companies and Congress to improve and increase the products that are available to our growers.”

Michigan Sen. Debbie Stabenow, committee chairwoman, asked Coley about U.S. cotton’s “unique position” in light of the WTO case lost to Brazil. “Why do you believe (the proposal from cotton growers) achieves the goal as it relates to the WTO case?”

Coley replied that the WTO Brazil case was in two parts: the export credit guarantee program and the upland cotton program. “Our proposal – STAX, the insurance product – makes changes to the marketing loan and counter-cyclical payment.”

As part of the WTO case, “Brazil challenged the insurance program for cotton. But the WTO panel did not find any fault with insurance programs in terms of distorting production, trade or price.”

STAX, said Coley, “is only triggered by loss in revenue. Support is established and based on the current futures market. The product doesn’t provide support above the market but simply allows the producer to ensure a portion of the expected market returns.

“Provisions of (STAX were) in the market loan adjustments. (Between) 1999 through 2005 – the years in question with the WTO case – we would have had a 60 percent reduction in support in the programs deemed to be economically injurious by the panel.

“We understand the framework agreement between the United States and Brazil calls for a resolution of the dispute as part of the development of the 2012 farm bill. Our proposal addresses cotton but not the findings regarding the Export Credit Guarantee Program.”

Georgia Sen. Saxby Chambliss wondered if Coley saw any of the proposals from other commodity groups providing an adequate safety net. “Do they seem to be configured to work better for particular commodities rather than treat everybody equitably?”

Coley: “The revenue products offered will not work for cotton … due to the fact that we have extreme prices, yields and variations in the calculated years.”

Rice

Travis Satterfield, a Mississippi rice farmerspeaking on behalf of the U.S. Rice Producers Association and the USA Rice Federation, rejected the idea of a one-size-fits-all program for farmers across the nation.

“There is a great diversity in agriculture in this country,” Satterfield testified. “We have different crops, different farming practices, different rainfall seasons. I think it is very, very difficult to have one program that fits everybody…

“We need a program that is financially meaningful to producers. The best way to do that is have (each commodity) craft a program that best fits their needs.”

Satterfield was asked why crop insurance doesn’t work for rice as well as it does for other crops. “The first component I think in protection from crop insurance is yield. We do not have variability in yield that you have in other crops. As an irrigated crop, our yield is fairly constant.

“So, our main support from crop insurance would have to be a revenue-type program. It wouldn’t be so much a yield protectant but (be concerned with) a price component. That’s why we’ve grappled with trying to find a crop insurance program that would fit in a rice situation where there is a pretty standard yield. Variability in price is a big factor.”

Stabenow said Louisiana rice growers “say ‘just open up Cuba and we’re fine.’ In California, rice growers are looking for a county-level revenue program. I’m wondering why that approach doesn’t work for rice growers in other regions.”

The big problem, answered Satterfield “is, basically, in the United States we have two types of rice. The Mid-South basically produces a long-grain rice. California produces a medium- or short-grain. Those are different types and go to different markets. The medium-grain rice has a more stable market and the long-grain market changes quite a bit.

“In order to craft a revenue program, you need a constant price – a situation you don’t have in long-grain rice like you do in medium-grain. So, even though it’s the same commodity, it’s (composed) of different types and there are different marketing situations. That’s why we have some differences of opinion in the rice industry.”

Farm Bureau and EWG

The American Farm Bureau Federation (AFBF) is pushing “the option of stacking area-wide insurance policies on top of individual policies as something that could provide value to growers,” pointed out Kansas Sen. Pat Roberts, ranking member of the committee, while addressing AFBF president Bob Stallman. “Can you tell me a little more about how Farm Bureau sees this program in terms of benefiting growers across the country?”

AFBF concerns are “on several levels,” said Stallman. “One is at the level which the top layer is set. The devil is always in the details. We’re concerned that if you set the level of coverage too high – and there have been some proposals of 90 and 95 percent coverage levels – that you’re taking too much risk from the producer.”

Going that route would mean “the law of unintended consequences kicks in,” claimed Stallman. “You have farmers that are willing to leverage their equity a whole lot more than they would otherwise. You have the bidding up of cash rents and land prices and the normal things that occur purely from an agricultural economics perspective. We believe that would make it more difficult for young farmers and ranchers.

“We also want to be sure we do this on an area basis … as opposed to a farm-level trigger. We’re very concerned that with farm-level triggers at that high a level of coverage there’s a risk of moral hazard. And, obviously, the costs go up when you use a farm trigger as opposed to an area-wide trigger.”

The AFBF is “willing to look at some of these proposals,” continued Stallman. “If the parameters are right, maybe we can come to a consensus. We still fundamentally believe that flipping it around and letting the government take the deep loss and giving the producers the responsibility of crafting their own risk management with existing crop insurance tools at a lower premium presents a better option. (That would mean) producers have more skin in the game as opposed to the government taking the top layer of losses and producers taking lower levels.”

The day after so many endorsements of ramping up federal crop insurance, the Environmental Working Group (EWG) jumped into the fray with claims that U.S. taxpayers unwittingly funded overseas insurance companies between 2007 and 2011. The group, long derided by many commodity and farmer groups, released a study showing that twenty insurance companies – including those based in Bermuda, Japan, Switzerland, Australia, and Canada – received over $7.1 billion through the USDA to sell American farmers crop insurance.

“More and more tax dollars are flowing to foreign insurance companies and away from farmers, working families and the environment,” Scott Faber, EWG vice president for Government Affairs, said during a Friday morning press conference. “These insurance subsidies are being provided with no strings attached to the largest and most profitable farm operators and foreign insurance companies.”

For more on the EWG report, see here.