WASHINGTON,
Aug. 19, 2016 – USDA was ordered to look into the possibility of creating a
catfish insurance program and the result is disappointing to many of the
nation’s catfish farmers.
After
reviewing the results of an exhaustive review by the research group Agralytica
Consulting, the Federal Crop Insurance Corporation (FCIC) concluded that there’s
just no sound way to provide U.S. catfish farmers with insurance policies that
protect them against falling prices and rising input costs.
“The
study concluded that there is not enough available data to establish a catfish
crop insurance program that would be actuarially sound,” a Risk Management
Agency spokesman said. “Stakeholders are encouraged to provide comments on the
study, which is available on the Risk Management Agency’s website.”
“Other
livestock gross margin plans offered by (RMA) rely on futures markets to
determine estimated prices for products and inputs (feed) in order to calculate
gross margin guarantees for insurance purposes,” the Agralytica study said.
“Unfortunately, there are neither futures for catfish feed nor for catfish.”
The
researchers said they considered the possibility of basing estimates for feed
prices on a formula that focuses on futures prices of key ingredients. Those
estimates would likely only be good for a year at most, though, and predicting
reliable prices for the catfish would still not be possible.
“An
assessment of an econometric model used for this purpose by the Livestock
Revenue Protection (LRP)-Lamb program, along with a review of a similar
proposed model for catfish, suggest that this type of model would perform
poorly in providing useful estimates of future catfish prices,” the study said.
Still,
the researchers said they went on to consider other alternatives such as trying
to use prior prices of catfish in order to forecast future prices as well as
constructing a “feed spike insurance” that would not protect producers from
margin losses, but would protect them from steep rises in feed prices.
“After
careful review, we conclude that there are key data challenges and actuarial
concerns that cannot be overcome,” the study concluded. “We are also concerned
that a program could distort the catfish market and be vulnerable to adverse
selection and moral hazard.”
Also,
the only way the such a program might be made to work and get enough producers
to sign up would be for RMA to offer a significant subsidy and that would
likely prove to be a major distortion to the market, the study said.
“We
do not believe there would be significant participation in the program without
a large subsidy (or only in scenarios advantageous to the growers)” the study
said. “If the participation is low, the cost to RMA of maintaining a program
would be too high in relation to the benefits provided. If the subsidy were too high, this may
distort the supply curve. We recommend that RMA not try to develop a margin
protection plan for catfish.”
The report and RMA’s conclusion is a letdown, said a spokesman for Catfish Farmers of America.
“It is our understanding that RMA has received, or will receive, a
report on catfish margin insurance that does not recommend pursuing an
insurance product for catfish under a gross margin model,” the spokesman said.
“If true, CFA is certainly disappointed and will review the report’s finding
when made publicly available.”
An RMA official said that once the report is made public, the
agency will begin accepting feedback on the study and the agency’s conclusions.
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