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No Ag Program Safe from Budget Cuts Revenue-Based Farm Safety Net Programs
Face Uphill Battle in 2012 Farm Bill
Katie Micik
DTN Wire Editor
Thu Nov 4, 2010 05:12 PM CDT

GRAND ISLAND, Neb. (DTN) -- No agriculture program is safe in a political environment aimed at reducing the deficit and cutting costs. That was the main theme of a workshop for crop insurance agents on Wednesday.

"Right now the assumption is, and I think it's a pretty strong assumption at that, the assumption is there is absolutely no new money for the next farm bill," said Brad Lubben, a University of Nebraska agriculture economics professor. "There's no new money for new programs. There's not even enough money for existing programs, which means everything is a target."

The workshop, "Using New Tools to Manage Risk," aimed to help crop insurance agents understand the different risk management tools at their clients' disposal. The program, which agents attended for continuing education credits, also covered the Standard Reinsurance Agreement, changes in the crop insurance program and the farm safety net.

Direct payments, crop insurance and conservation are the biggest targets for cuts during the farm bill negotiations, Lubben said. "Crop insurance is one of those targets as well, because it's a bigger total budget item than commodity programs themselves," he said.

But the Standard Reinsurance Agreement signed by crop-insurance companies this past summer may provide USDA's Risk Management Agency and the industry with some political cover from cuts, said RMA Administrator Bill Murphy.

"I'm going to make it known that the crop insurance is paid (for)," he said. "We've provided $6 billion in savings over 10 years. Again, if every other agency was able to do that, we would not be looking at the deficit we're seeing today."

Murphy praised Ag Committee Chairman Collin Peterson, D-Minn., for starting the conversation on the 2012 farm bill early, because it's encouraged farmers and ag groups to prioritize.


"Overall, you're hearing the crop insurance program in working, so I think we've got a lot of support going into the farm bill," he said. "Normally, we're not dealt with heavily in the farm bill, because I think Congress understands that the involvement of private industry in government and in the farm bill, you have to be careful what you tweak, because there could be unintended consequences."

Many farmers want to tweak the Average Revenue Crop Election (ACRE) program by replacing state yield and price triggers with county yield and price triggers, saying it provides farmers with a better safety net.

That switch could put the crop insurance out of business, because ACRE would resemble the Group Risk Income Protection (GRIP) policy, said Kansas State University Ag Economist Art Barnaby. "I don't know how many farmers would continue to buy (crop insurance) if they got a free GRIP contract."

Crop insurance helps commercial farmers manage risk outside of what ACRE can pay, because there are no payment limits. Politically, it's harder to put a payment limit on crop insurance, because farmers pay a significant share of the premium, he said.

"If it's a risk management issue, payment limits have to be part of the discussion," Barnaby said. "Because if you're a big farm, you've got big debt, and it requires big dollars, and when you come up short, you've got big loss. Now, it may be the same percentage loss as a guy with a thousand acres as it is with guy with 5,000 acres, but the dollar amounts are obviously tremendously different."

The current ACRE program has a payment limit of $73,000, which Barnaby said doesn't come close to helping a farmer with several thousand acres manage his risk. If ACRE, with a state trigger, pays out $100 an acre one year out of 10, a farmer with more than 730 acres leaves a lot of money on the table by enrolling, because the 20 percent cut in his direct payments over that time frame isn't covered by the one-time payment.


"You've got big risk exposure if things go wrong," Barnaby warned. "That would be the first thing that would happen with a free GRIP contract -- undoubtedly, some politician would put a payment limitation on it, and then all of a sudden the so-called risk management goes away ... So it may not cover your risk anyway if you're a big farmer. In the meantime, they screwed up the crop insurance program, so now you're worse off than you were before."

Barnaby said ACRE would work as a better safety net for farmers with a county trigger, as long as there was no payment limit or a flexible payment limit "but it would be expensive. I mean really expensive." Lubben said the change would cost in the billions of dollars.

The Iowa Farm Bureau has suggested ending direct payments and using that $5.2 billion to make the switch to county triggers. That wouldn't add to the cost of a 2012 farm bill, but not everyone is on board. Southern farmers rely more on direct payments than farmers in the Midwest and don't have as good crop insurance coverage. Oklahoma farmers recently told Rep. Frank Lucas, R-Okla., who will take over the chairmanship of the House Agriculture Committee next year, they want to keep direct payments.

"By any calculation, it's going to cost more to switch to a county trigger versus a state trigger," Lubben said. "And if it's going to cost more, there's absolutely no dollars to pay for it, unless you start robbing another program like direct payments to do so."

Katie Micik can be reached at Katie.micik@telventdtn.com