WASHINGTON, May 16, 2012- While the House Agriculture Committee considers its development of the 2012 Farm Bill, the Subcommittee on General Farm Commodities and Risk Management questioned agricultural economists and commodity groups about their views on the Senate Committee-passed version during a Wednesday Farm Bill hearing.
Subcommittee Chairman Michael Conaway, R-Texas, asked about the Agricultural Risk Coverage (ARC) program designed to supplement crop insurance in the Senate Agriculture Committee’s proposed Farm Bill, which is waiting to reach the Senate floor.
“The Senate bill undermines crop insurance by setting up a revenue program that competes with and duplicates crop insurance,” Conaway said.
He proclaimed his preference for Rep. Randy Neugebauer’s, R-Texas, Supplemental Coverage Option (SCO), which would require producers to buy coverage for shallow losses.
“I don’t believe you can provide every commodity a fair shake with the ARC program,” said Professor and Extension Economist of the Department of Agricultural Economics at Texas A&M University, Joe Outlaw. “Some commodities would be sharing a loss while others would be sharing a profit. To me, it’s just not fair.”
Committing to the need for a strong crop insurance program in whatever Farm Bill is written, House Agriculture Committee Chairman Frank Lucas, R-Okla., added that it has to recognize the diversity of agriculture in America.
“It has to work for all regions and all commodities,” Lucas said. “That’s why it is vitally important that the Commodity Title provide producers with options so they can choose the program that works best for them whether it is protecting revenue or price.”
He addressed concerns that the Senate Committee bill shifts baseline dollars from one commodity to another, or that “in other words, the Senate bill picks winners and losers.”
“What I find most interesting is that no one is talking about the ARC program’s ability to enable some commodities to nearly lock in a profit because ARC uses market prices in the revenue benchmark that are near their all-time high,” Outlaw said, noting that corn, soybeans, wheat and grain sorghum are projected to have 5-year Olympic average prices above 2011 production costs.
“If paid on planted acres, the revenue safety net program could nearly guarantee a profit to these crops, depending on the final payment fraction, while others protected a loss,” he said. “Each commodity ought to have an opportunity to stay in business if there is a loss. The way the Senate plan is crafted right now, I can’t say that they can.”
Rep. Vicky Hartzler, R-Mo., asked whether a free program designed like the Senate’s ARC plan to supplement crop insurance would potentially overcome crop insurance. Collins emphasized that risk exists when constructing a supplemental program “that walks and talks like crop insurance.”
“When you design a program to supplement crop insurance, if it looks like crop insurance and it functions like crop insurance and it’s free, then farmers are going to choose that program,” said Economic Advisor to National Crop Insurance Services Keith Collins, clarifying that the Senate Committee refined the program with restrictions on coverage and producer co-pays.
“I think the Senate did good job in trying to minimize those affects,” Collins added. “My recommendation is for the House Committee to mitigate those interaction affects as much as possible.”
Although National Corn Growers Association (NCGA) representative Chip Bowling testified that the Senate Committee’s ARC program reflects the needs of corn growers as well as the NCGA principal that government programs should not encourage producers to take on unnecessary risk, USA Rice Producer's Group representative Linda Raun accused the plan of ignoring her industry.
“Estimates show that Midwestern and Northern farmers will have an increasingly disproportionate share of the baseline and Sunbelt crops will be left with a further shrinking baseline coupled with ineffective risk protection for many crops,” Raun said. “If you want only one or two crops grown in this country, then the Senate Ag Committee has written a bill for you.”
Southwest Council of Agribusiness President Dee Vaughan, who represents several commodities, also criticized the Senate’s Farm Bill plan, calling it “essentially free insurance of a sort.”
“The Senate does not provide meaningful price protection for any producer,” he said. “ARC is not designed to provide a safety net in times of deep loss, but rather it is designed to just provide a little boost when expected revenue falls off slightly.”
American Farm Bureau Federation Bob Stallman also testified, touting the AFBF plan for deep loss coverage.
“Our concept benefits would come into effect only when they are needed and would eliminate the need for ad hoc disaster plan,” Stallman explained, while also noting that deep loss coverage reduces crop insurance premiums, delivers policy through private insurance providers and provides coverage beyond program crops to specialty crops.
Rep. David Scott, D-Ga., asked whether the Senate Committee’s program meets peanut growers’ needs in any way, acknowledging that it did include the Stacked Income Protection Plan (STAX) designed by the National Cotton Council.
“The Senate proposals for cotton and STAX pretty much had what we wanted in it,” said National Cotton Council Chairman Chuck Coley. “But we also understand what the Senate passed didn’t answer to some of our other Southern crops such as peanuts and rice.”
One notable area of agreement between each commodity group represented at today’s hearing is that the Farm Bill should be completed this year.
“Agriculture production is already one of the most risky enterprises in the economy and barley producers need the certainty provided through this legislation,” said National Barley Growers Association President Scott Brown. “We ask that the Committee and Congress work in a bipartisan fashion to complete this bill as soon as possible.”
Brown also testified, along with Stallman, that tying conservation compliance to crop insurance could discourage producers form investing in crop insurance.
The hearing, “the Formulation of the 2012 Farm Bill: Commodity Programs and Crop Insurance,” continues Thursday with additional witnesses.
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