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.”The study was mandated in the 2014 farm bill and lawmakers envisioned the creation of a gross margin insurance program, but the study concluded there was no way to accurately predict the future prices farmers would be getting or the future production costs.
“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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