Path to the 2012 Farm Bill: House Hearing on Commodity and Crop Insurance Subsidies
May 17th, 2012
The House Agriculture Subcommittee on General Farm Commodities and Risk Management held a series of farm bill hearings this week to examine commodity and crop insurance programs in advance of writing their version of what will hopefully become the 2012 Farm Bill. The full House Agriculture Committee expects to mark up and vote on a new farm bill sometime in June, likely the second half of June.
The first hearing was held on Wednesday May 16 and included two panels, an economist panel and a farm and commodity group panel. The second hearing was held on Thursday, May 17 and also heard from two panels that included additional producer groups and representatives from the crop insurance industry.
Producer groups invited to testify over these two days of hearing included representatives from American Farm Bureau, National Farmers Union, National Corn Growers Association, American Soybean Association, National Association of Wheat Growers, National Barley Growers Association, USA Dry Pea and Lentil Council, USA Rice Producer’s Group, Southwest Council of Agribusiness, National Cotton Council, Southern Peanut Farmers Federation, and National Sorghum Producers.
Members who participated over these two days of hearings include Subcommittee Chairman Conaway (R-TX-11), Ranking Member Boswell (D-IA-3), Committee Chairman Lucas (R-OK-3), Committee Ranking Member Peterson (D-MN-7), and at one point or another most of the members of the Subcommittee.
Target Prices Versus Revenue Coverage
The overarching theme that resonated throughout these hearings was that federal farm safety net programs need to be equitable across all regions of the country and need to recognize the diversity in American agriculture. Not surprisingly, witnesses who testified on behalf of peanuts, sorghum, and rice expressed the most opposition to the new revenue-based “shallow loss” farm program established in the farm bill approved by the Senate Agriculture Committee.
The Senate Committee-passed bill replaces the current direct and counter-cyclical payment programs with a “shallow loss” program known as Agriculture Risk Coverage (ARC). In contrast, rice, sorghum, and peanut associations and many of the Members of the House Subcommittee prefer to retain a much-modified version of the current counter-cyclical price-based program. Like today’s counter-cyclical program, their preferred commodity program would pay farmers when prices are low, but with significantly higher government-set price protection levels and with the program re-coupled to actual production of the price-protected commodity. This combination of revisions makes the program more trade-distorting, less market-oriented, and far more expensive than today’s counter-cyclical program.
Several Members and witnesses referred to the Senate approach pejoratively as a “one size fits all” proposal that provides a safety net only so long as commodity prices remain relatively high over a long period of time. The concern is that if prices come down and stay down for a period of years, there will not be enough price and income protection in the more market-oriented Senate ARC approach.
The debate over the direction of the commodity subsidy system is likely to result in two different approaches in the House and Senate farm bills that will then have to be negotiated and compromised in a House-Senate conference committee later in the farm bill process. While it is quite possible to include both programs and make them separate options for producers to choose between, doing both within the farm bill budget constraints will necessarily mean both programs would offer less protection than would be afforded if there were a single, unified program. Assuming the House Committee bill includes both options and assuming they stick with the same budget constraint as the Senate Committee did, the emerging House bill will present a preview of what such a dual program would look like.
Revenue Coverage Versus Crop Insurance
There was also concern among some Members and witnesses representing the crop insurance industry that the ARC proposal included in the Senate bill competes with the federal crop insurance program by offering similar coverage levels but at no cost to producers, which some contend might influence a producer’s decision in whether they purchase crop insurance, rely soley on the free Title I revenue-based program, or do both but choose lower insurance coverage options.
At least one economist testifying said in his view it was more likely that producers would do both – take the free revenue protection provided by ARC in the commodity title but also continue to choose high levels of revenue insurance protection, at highly subsidized rates, in the crop insurance title.
There is not yet a final budget scoring on the Senate Committee-passed bill, but when it does finally emerge it is expected to show at least a couple of billion dollar savings over the course of ten years based on farmers choosing somewhat lower revenue insurance coverage levels given the existence of the ARC shallow loss protection. Given the over $90 billion the crop and revenue insurance program subsidies are expected to cost the taxpayers over the next ten years, however, a few billion dollars actually represents a fairly small displacement rate.
Payment limits was a topic of much discussion throughout much of the hearing testimony and Member statements. The Senate Committee-passed bill caps ARC payments at no more than $50,000 per farm per year, and also includes important new “actively engaged in farming” requirements that close existing loopholes that currently allow mega farms to collect many multiple times the legal payment limit.
When questioned specifically on the issue of placing payment limits on federally subsidized crop insurance premiums, it was unsurprising that the majority of farm and commodity groups, wanting to ensure continued access to unlimited subsidies for mega farms, testified in these hearings opposed to the Senate bill’s payment limits and requirements that recipients be actively engaged in farming to be eligible for the program.
Most of the witnesses also testified in opposition to any limits on crop and revenue insurance subsidies. The Senate Committee bill, while adopting reform provisions on the commodity title side of the ledger, leaves the crop and revenue insurance side of the subsidy ledger wide open with no caps and no requirements as to who can receive the subsidies. That inconsistency – putting caps on the smaller of the two subsides while leaving the larger subsidy wide open for abuse – will be the topic of a Senate floor amendment, and likely a House floor amendment as well. As we have previously reported, Senators Coburn (R-OK) and Durbin (D-IL) have been vocal in their support for placing a limit on the amount of taxpayer subsidies that any one producer can receive.
Roger Johnson, head of the National Farmers Union, was the lone witness testifying in support of strict commodity and crop insurance payment limits.
Another issue raised in the House hearings was whether or not conservation requirements should be tied to federally subsidized crop insurance premium subsidies. To receive commodity subsidies or farm bill conservation payments, producers must comply with soil erosion prevention plans if they farm highly erodible land and must promise not to drain any wetlands on their property. Under the original conservation provision passed by Congress as part of the 1985 Farm Bill these very basic requirements applied to the receipt of crop insurance subsidies as well, but that requirement was later removed as part of the 1996 Farm Bill.
When the panelists on the producer panel during both days of hearings were asked about this, the overwhelming response was in line with what we’ve been hearing from these groups throughout the farm bill debate – the fact that taxpayers pay for most of the farmers insurance premiums, to the tune of over $7 billion a year, does not entitle taxpayers to expect any quid pro quo with respect to conserving the natural resources.
Again, NFU was the exception, stating their sensible position in support of the “the reestablishment of compliance requirements for federal crop insurance eligibility so that all existing or new crop and revenue insurance or other risk management programs are subject to all conservation compliance provisions.”
When talking about any farm program, it is easy to leave out how young and beginning farmers experience these programs differently than more established producers, and crop insurance and revenue-based commodity programs are certainly no exception. Representative Walz (D-MN-1), who is one of the two lead sponsors of the Beginning Farmer and Rancher Opportunity Act, was one of the only members on the committee to press the panel specifically on how to address the barriers that new producers face when trying to access farm safety net programs. A challenge with revenue-based programs is how to make it worthwhile for new producers to participate, since they lack an established production history, and therefore are protected at a lower rate than producers with an established revenue history. Compounding the increased risk that new producers take on in the first few years when they are establishing their farming operation, most lenders either require that borrowers have crop insurance or if not still use this as an essential component in evaluating the risk of providing a loan to a new farmer.
Unfortunately, the panelists were generally unable to offer any suggestions or solutions for how to improve crop insurance programs for new producers, but did acknowledge that this continues to be an issue.
Provisions included in the Senate bill, based on an amendment by Senators Klobuchar (D-MN) and Baucus (D-MT), attempt to make it easier for beginners to be able to afford crop insurance by reducing the premiums charged for beginning farmers and improving their assigned yields. NSAC is supportive of the intent of those Senate provisions but is encouraging Congress to further refine them as the farm bill process moves forward.
Although specialty crops are generally not included in most discussions on farm commodity programs, there were several points during these hearings where farm safety net issues related to diversified operations did come up. Rep. Walz asked a pointed question of the producer panelists of whether or not there was room in this farm bill for planting flexibility and whole farm revenue insurance (which was included the Senate bill). Although the specialty crop industry has been generally opposed to planting flexibility, Walz argued that it allows producers who want to diversify to respond to market signals and move some of their acres from commodities to fruits and vegetables. Whole farm revenue insurance is another option that allows diversified producers of both commodity and non-commodity crops to participate in farm safety net program by providing revenue protection for a wide diversity of crops at the whole farm scale.
Roger Johnson was the only panelist to immediately respond on these issues, stating that whole farm revenue insurance is generally underappreciated in agriculture because we tend to think crop by crop. In many parts of the country though, farmers plant a lot of different crops, and we need to allow farmers to plant what they think makes sense.
The NFU testimony also included another very sensible recommendation: “Crop insurance should be improved for organic producers, including ending the existing surcharge on organic policies and the full implementation of coverage levels based on organic prices. Additionally, crop insurance products and risk management tools should be developed for specialty crop producers.”
Planting flexibility, whole farm revenue insurance, and improvements to organic crop insurance are included in the Local Farms, Food and Jobs Act.
To see a video of the hearings, or read witnesses written testimony, click here.