[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
HOW FARM POLICY HELPS FARMERS IN ADVERSE CONDITIONS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
GENERAL FARM COMMODITIES
AND RISK MANAGEMENT
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
JUNE 20, 2019
__________
Serial No. 116-11
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Agriculture
agriculture.house.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
36-927 PDF WASHINGTON : 2019
COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
DAVID SCOTT, Georgia K. MICHAEL CONAWAY, Texas, Ranking
JIM COSTA, California Minority Member
MARCIA L. FUDGE, Ohio GLENN THOMPSON, Pennsylvania
JAMES P. McGOVERN, Massachusetts AUSTIN SCOTT, Georgia
FILEMON VELA, Texas ERIC A. ``RICK'' CRAWFORD,
STACEY E. PLASKETT, Virgin Islands Arkansas
ALMA S. ADAMS, North Carolina SCOTT DesJARLAIS, Tennessee
Vice Chair VICKY HARTZLER, Missouri
ABIGAIL DAVIS SPANBERGER, Virginia DOUG LaMALFA, California
JAHANA HAYES, Connecticut RODNEY DAVIS, Illinois
ANTONIO DELGADO, New York TED S. YOHO, Florida
TJ COX, California RICK W. ALLEN, Georgia
ANGIE CRAIG, Minnesota MIKE BOST, Illinois
ANTHONY BRINDISI, New York DAVID ROUZER, North Carolina
JEFFERSON VAN DREW, New Jersey RALPH LEE ABRAHAM, Louisiana
JOSH HARDER, California TRENT KELLY, Mississippi
KIM SCHRIER, Washington JAMES COMER, Kentucky
CHELLIE PINGREE, Maine ROGER W. MARSHALL, Kansas
CHERI BUSTOS, Illinois DON BACON, Nebraska
SEAN PATRICK MALONEY, New York NEAL P. DUNN, Florida
SALUD O. CARBAJAL, California DUSTY JOHNSON, South Dakota
AL LAWSON, Jr., Florida JAMES R. BAIRD, Indiana
TOM O'HALLERAN, Arizona JIM HAGEDORN, Minnesota
JIMMY PANETTA, California
ANN KIRKPATRICK, Arizona
CYNTHIA AXNE, Iowa
______
Anne Simmons, Staff Director
Matthew S. Schertz, Minority Staff Director
______
Subcommittee on General Farm Commodities and Risk Management
FILEMON VELA, Texas, Chairman
ANGIE CRAIG, Minnesota GLENN THOMPSON, Pennsylvania,
DAVID SCOTT, Georgia Ranking Minority Member
AL LAWSON, Jr., Florida AUSTIN SCOTT, Georgia
JEFFERSON VAN DREW, New Jersey ERIC A. ``RICK'' CRAWFORD,
SALUD O. CARBAJAL, California Arkansas
RICK W. ALLEN, Georgia
RALPH LEE ABRAHAM, Louisiana
Mike Stranz, Subcommittee Staff Director
(ii)
C O N T E N T S
----------
Page
Conaway, Hon. K. Michael, a Representative in Congress from
Texas, opening statement....................................... 5
Craig, Hon. Angie, a Representative in Congress from Minnesota,
submitted statement; on behalf of Crop Insurance and
Reinsurance Bureau............................................. 61
Lawson, Jr., Hon. Al, a Representative in Congress from Florida,
submitted letter; on behalf of John L. Hoblick, President,
Florida Farm Bureau Federation................................. 64
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota...................................................... 4
Thompson, Hon. Glenn, a Representative in Congress from
Pennsylvania, opening statement................................ 3
Vela, Hon. Filemon, a Representative in Congress from Texas,
opening statement.............................................. 1
Prepared statement........................................... 2
Submitted statement on behalf of Ben Scholz, President,
National Association of Wheat Growers...................... 59
Witnesses
Lubben, Ph.D., Bradley D., Extension Associate Professor, Policy
Specialist, University of Nebraska-Lincoln; Director, North
Central Extension Risk Management Education Center, UNL,
Lincoln, NE.................................................... 7
Prepared statement........................................... 9
Ettleman, Leo, ag producer, Sidney, IA........................... 11
Prepared statement........................................... 13
Gerdes, Ruth A., President, Auburn Agency Crop Insurance, Inc.,
Auburn, NE; on behalf of Crop Insurance Professionals
Association.................................................... 16
Prepared statement........................................... 17
Davenport, J.D., Michael, Chairman, American Association of Crop
Insurers; Chief Operating Officer, Rain and Hail LLC, Johnston,
IA............................................................. 24
Prepared statement........................................... 26
Boone, Marcus A., Senior Vice President and Chief Lending
Officer, Farm Credit of Florida, ACA, West Palm Beach, FL...... 32
Prepared statement........................................... 33
Willis, LL.M., Brandon, Assistant Professor, Department of
Applied Economics, College of Agriculture and Applied Sciences,
Utah State University, Logan, UT............................... 36
Prepared statement........................................... 38
HOW FARM POLICY HELPS FARMERS IN ADVERSE CONDITIONS
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THURSDAY, JUNE 20, 2019
House of Representatives,
Subcommittee on General Farm Commodities and Risk
Management,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 9:59 a.m., in
Room 1300, Longworth House Office Building, Hon. Filemon Vela
[Chairman of the Subcommittee] presiding.
Members present: Representatives Vela, Craig, David Scott
of Georgia, Lawson, Van Drew, Carbajal, Peterson (ex officio),
Axne, Thompson, Austin Scott of Georgia, Crawford, Allen,
Abraham, Conaway (ex officio), and Johnson.
Staff present: Carlton Bridgeforth, Emily German, Isabel
Rosa, Mike Stranz, Patricia Straughn, Trevor White, Dana
Sandman, and Jennifer Yezak.
OPENING STATEMENT OF HON. FILEMON VELA, A REPRESENTATIVE IN
CONGRESS FROM TEXAS
The Chairman. This hearing of the Subcommittee on General
Farm Commodities and Risk Management, entitled How Farm Policy
Helps Farmers in Adverse Conditions, will come to order.
Good morning, and thank you all for joining us here today
to discuss how farm policy helps farmers take on the challenges
they face this year. Today's set of Federal farm programs is
generally designed to assist farmers when they are most in
need. At no time is that need more apparent than in the farm
economy right now.
Farmers are looking at losses due to severe weather events,
particularly as a result of flooding in a wet spring planting
season. Excessive moisture on cropland has delayed planting for
many farmers in the Midwest. The Agriculture Department's
progress report which was released on Monday shows that the
corn crop has still not been fully planted and many farmers are
making decisions to switch to soybeans or a cover crop. Last
week, the World Agricultural Supply and Demand Estimates report
described this year's planting delays as unprecedented.
Commodity prices have been generally low for several years.
Reduced foreign demand as a result of the trade war has made
this situation worse. The risk management system is structured
to assist farmers in both of these types of cases, and many
operations across the country are, in fact, confronted with
both challenges.
Through multiple hearings on several subcommittees, we have
well documented the pain currently in the farm economy. Farm
bankruptcies are up, farm profits are down, prices are in the
tank, credit is tight, and the weather has been not only
terrible, it is compounding the already present hardship for
farmers.
This Subcommittee heard from several farmers at a hearing
last month about how a struggling farm economy has affected
their operations. At our hearing today we will examine how farm
policies help farmers in tough times.
Crop insurance is a publicly-supported program delivered by
private companies and agents that provides timely assistance to
farmers. Farmers can customize their coverage and can choose
how to best manage the risk, and they can expect timely service
and assistance when they suffer a loss.
Standing disaster programs run by USDA are designed to
respond when certain disasters strike. Emergency disaster
programs, which are authorized in response to particularly
extreme or large-scale disaster events have also been enacted
in recent years and are providing assistance.
Additionally, existing commodity programs as authorized in
title I of the farm bill provide a baseline level of support
when prices fall.
Today's witnesses know the importance of these programs and
policies and speak from a wide range of experiences in working
with the farm safety net. I look forward to each of your
testimony because I know the conversation on crop insurance is
not an easy one. At a time when every Federal dollar is
scrutinized, I appreciate the challenge faced in the industry
to explain how crop insurance works and why it is such an
indispensable part of the farm safety net.
If there is a silver lining to this economic storm it is
that there has never been a clearer need for programs like
these that help to keep our farm families in operation.
[The prepared statement of Mr. Vela follows:]
Prepared Statement of Hon. Filemon Vela, a Representative in Congress
from Texas
Good morning, and thank you all for joining us here today to
discuss how farm policy helps farmers take on the challenges they face
this year.
Today's set of Federal farm programs is generally designed to
assist farmers when they are most in need. At no time is that need more
apparent than in the farm economy right now.
Farmers are looking at losses due to severe weather events,
particularly as a result of flooding and a wet spring planting season.
Excessive moisture on cropland has delayed planting for many farmers in
the Midwest. The Agriculture Department's crop progress report, which
was released on Monday, shows that the corn crop has still not been
fully planted, and many farmers are making decisions to switch to
soybeans or a cover crop. Last week, the World Agricultural Supply and
Demand Estimates report described this year's planting delays as
``unprecedented.''
Commodity prices have been generally low for several years. Reduced
foreign demand as a result of the trade war has made this situation
worse.
The risk management system is structured to assist farmers in both
of these types of cases, and many operations across the country are in
fact confronted with both challenges.
Through multiple hearings on several subcommittees, we've well-
documented the pain currently in the farm economy: farm bankruptcies
are up, farm profits are down, prices are in the tank, credit is tight,
and the weather's been not only terrible, it's compounding the already-
present hardships for farmers.
This Subcommittee heard from several farmers at a hearing last
month, and how a struggling farm economy has affected their operations.
At our hearing today, we will examine how farm policies help farmers in
tough times.
Crop insurance is a publicly-supported program delivered by private
companies and agents that provides timely assistance to farmers.
Farmers can customize their coverage and can choose how to best manage
their risk, and they can expect timely service and assistance when they
suffer a loss.
Standing disaster programs run by USDA are designed to respond when
certain disasters strike. Emergency disaster programs, which are
authorized in response to particularly extreme or large-scale disaster
events, have also been enacted in recent years and are providing
assistance.
Additionally, existing commodity programs, as authorized in title I
of the farm bill, provide a baseline level of support when prices fall.
Today's witnesses know the importance of these programs and
policies, and speak from a wide range of experiences in working with
the farm safety net. I look forward to each of your testimony, because
I know the conversation on crop insurance isn't an easy one. At a time
when every Federal dollar is scrutinized, I appreciate the challenge
facing the industry to explain how crop insurance works and why it's
such an indispensable part of the farm safety net. If there is a silver
lining to this economic storm, it's that there's never been a clearer
need for programs like these that help to keep our farm families in
operation.
With that I'd like to recognize my Ranking Member, Mr. Thompson of
Pennsylvania, for any opening remarks he'd like to make.
The Chairman. With that, I would like to recognize my
Ranking Member, Mr. Thompson of Pennsylvania, for any opening
remarks he would like to make.
OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN
CONGRESS FROM PENNSYLVANIA
Mr. Thompson. Mr. Chairman, thank you so much for convening
this hearing to talk about what, unfortunately, is a very
timely topic. We all know that farming and ranching come with a
unique set of challenges and an inordinate amount of risk. It
takes a very special person to be willing to borrow six or
seven figures from the bank every year, more than many of us
will borrow in a lifetime, just to plant a seed in hopes that
they will be able to harvest a crop. Now, these folks are the
salt of the earth and they fuel our rural economies. But
perhaps most importantly, because our farmers are so
productive, they are able to supply Americans with the safest
and most affordable supply of food in the world.
And while farming has always been a risky business, it
seems like in recent years, particularly this one, farmers and
ranchers really just can't catch a break. Between years of
hurricanes, tornadoes, fires, blizzards, and of course, record-
breaking floods and rainfall all across this country, no region
has been spared. And that is to say nothing of the economic
damage being caused by the illegal retaliatory tariffs imposed
by China and others.
As everyone in this room knows, the farm bill is the
primary vehicle which we use to provide risk management tools
to our nation's farmers and ranchers. And I am proud of the
work that we did in the previous Congress to reauthorize the
2018 Farm Bill without the need for an extension, which would
have magnified uncertainty that our farmers face today. And we
spent months and months working to make several targeted
improvements to farm policy. And I am proud of the fact that
the House prevailed against the Senate's proposed cuts to the
farm safety net. And while the farm safety net is designed to
be flexible and tailored to specific circumstances on a farm,
catastrophic events over the last couple of years have shown
that there is still work to be done.
In the interim, Congress recently stepped in with a round
of supplemental disaster assistance for those directly impacted
by the recent catastrophic events.
And while our farmers and ranchers can compete with anyone
in the world, the recent illegal retaliatory tariffs have shown
that our producers cannot compete directly against foreign
governments. For example, the United States recently won a case
at the WTO against China for shelling out $100 billion in a
single year to subsidize just three crops. A clear violation of
the commitments that they have made and more than we will spend
in more than 7 years on all of our authorized farm policies for
all crops.
And while the farm bill is designed to help level the
playing field, it is not designed to handle targeted
retaliation by a centrally planned foreign government. As a
result, I appreciate that the Administration stepped in to help
our producers. And I look forward to the second round of Market
Facilitation Payments Program assistance being provided as soon
as possible.
In today's hearing we have a panel of witnesses that all
bring a unique perspective on how recent disasters are
impacting producers and how various policies are responding. I
hope that today we can tease out how these various tools are
addressing the different risk producers are facing, while
examining where there may be room for continued improvement.
Mr. Chairman, I want to thank you for convening this
hearing. And with that, I yield back.
The Chairman. In consultation with the Ranking Member and
pursuant to Rule XI(e), I want to make Members of the
Subcommittee aware that other Members of the full Committee may
join us today.
And I now recognize Chairman Peterson for an opening
statement.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA
Mr. Peterson. Thank you, Mr. Chairman. And thank you and
the Ranking Member for your leadership and calling this
hearing.
Obviously, it is a good thing we got the farm bill done,
and we have that in place, as was noted. And, crop insurance is
doing a good job, the industry and the agents and all the
people involved, and that is certainly helpful. But I am
concerned, and these Market Facilitation Program payments--I
don't think they are going to solve the problem, but they are
certainly helpful, and that is all good. But I am worried about
where we are heading.
In my part of the world, we have some people that haven't
planted their whole farm. And it has been a tough, tough
spring, not only in my area, but across Illinois, Indiana, all
those kind of places. And that has brought back corn prices, I
guess, to some extent, which is a helpful thing. But, we have
survived the last number of years because of big crops. We have
survived low prices because we had big crops.
Last year's crop wasn't so good. This year, it is going to
be even worse. The prices for corn have improved, but soybeans
are still a big problem, and I don't see that changing.
The hog situation in China where they have more hogs than
anybody else in the world, over half of the hogs apparently
have died in China, and so that market has gone away. And when
the Committee went to South America, I was expecting to find in
Brazil and Argentina that the giant Chinese were in there
trying to buy from them big time because of these tariff
situations, but that was not the case. And I think the reason
is because the demand is not there because of the African swine
fever situation.
I hope my misgivings are wrong, and I hope we are not going
to be facing significant problems next winter, but I am kind of
afraid of where we are heading with this whole thing. We will
just have to monitor the situation and respond if it gets as
bad as I think.
Bankers are starting to talk to me about how they are
worried about what is going to happen next winter, whether they
are going to be able to finance everybody. I hope we get these
trade wars over with. That is going to be helpful, especially
my hog producers who are probably being affected more than
anybody else by this because they have a big demand in China
right now because of what has happened with swine fever. And,
we can't sell in to China because it is, what, a 62 percent
tariff, or whatever it is, and so it just doesn't work.
Hopefully, we can get those things behind us.
Hopefully, the rest of the year will be better weather-wise
than what we have seen so far and we will make some kind of
recovery; but, I think we are headed into some tough times, and
we appreciate the crop insurance industry for being there, and
that is certainly a big help. What they are doing with dairy
crop insurance is going to be a big help.
But the problem with crop insurance is that you can only
insure what the market price is. And so if the market price is
below the cost of production, you are insuring a loss, and that
is just the way--and there is no other way to do it, but that
is the reality. The only way you can change that is to change
the PLC and so forth in the farm bill, which is probably not
realistic. We will just have to work through it and make sure
that the Committee stays on top of what is going on and
responds when we have to.
I thank the Chairman and the Ranking Member for their
diligence, and I yield back.
The Chairman. Ranking Member Conaway is now recognized for
his opening statement.
OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
IN CONGRESS FROM TEXAS
Mr. Conaway. Thank you, Mr. Chairman. I do appreciate you
calling this hearing.
I want to agree wholeheartedly with my colleague from
Minnesota, his concerns and issues he brought forward. I won't
repeat those, other than to say, one of those pieces of the
trade deal that we could get done today or soon would be the
USMCA agreement between Mexico, Canada, the United States.
Mexico has ratified the agreement. We need to get that process
moving forward. It would help, again, take some of the
uncertainty out of what our farmers and ranchers face. I look
forward to hearing from our witnesses today to get a better
feel for how these things work or don't work.
And with that, I yield back.
The Chairman. The chair would request that other Members
submit their opening statements for the record, so the
witnesses may begin their testimony and to ensure that there is
ample time for questions.
I would like to welcome all of our witnesses. Thank you for
being here today.
At this time, I will introduce our first witness. Dr.
Bradley D. Lubben is an Extension Associate Professor and
Director of the North Central Extension Risk Management
Education Center at the University of Nebraska-Lincoln. He has
more than 24 years of experience in teaching research and
outreach focused on agricultural policy and economics,
specifically Federal farm programs and risk management. Dr.
Lubben grew up on a livestock and grain farm in Nebraska and
holds bachelor's and master's degrees from the University of
Nebraska-Lincoln, and a Ph.D. from Kansas State University.
Our second witness, Mr. Leo Ettleman is a sixth generation
farmer from Sidney, Iowa. He is a member of the governor's
Flood Recovery Advisory Board, where he serves as the Chairman
of the River Management and Infrastructure Working Group. He is
also the Chairman of Responsible River Management in Fremont
County, Iowa.
Our third witness is Ms. Ruth Gerdes, President of Auburn
Agency Crop, LLC, in Auburn, Nebraska. And she is testifying on
behalf of the Crop Insurance Professionals Association. Ms.
Gerdes grew up on a farm and ranch in western Nebraska, and
attended the University of Nebraska where she earned degrees in
agricultural science and animal science. Through her work at
Auburn Agency Crop, she helps to provide crop insurance
services to nearly 1,800 farmers.
Now I would like to recognize Mr. Carbajal for an
introduction of our fourth witness.
Mr. Carbajal. Thank you, Mr. Chairman.
It is a real pleasure for me to introduce one of my
constituents, Mr. Michael Davenport. Mr. Davenport serves as
the current Chairman of the American Association of Crop
Insurers, and resides in Santa Barbara, California, located in
my district. After graduating from the University of Iowa
College of Law, Mr. Davenport began his career at Wilson &
Pechacek, PLC, where he supervised nationwide crop insurance
coverage on behalf of multiple clients. He then went on to
serve as Vice President and General Counsel at Rain & Hail
Insurance Services, where he was a key member of an industry-
wide crop insurance negotiation with the Federal Government.
Currently, Mr. Davenport is the Chief Operation Officer of
Chubb Agriculture, a company that writes over $2.6 million of
insurance premiums. Between his experience in the crop
insurance industry and his close proximity to Central Coast
agriculture productions in my district, Mr. Davenport is no
doubt aware of how important reliable risk management programs
are for farmers.
Welcome, Mr. Davenport.
The Chairman. Mr. Lawson, you are now recognized for the
introduction of our fifth witness.
Mr. Lawson. Thank you, Mr. Chairman.
It is my pleasure to introduce Mr. Marcus Boone, Senior
Vice President and Chief Lending Officer of Farm Credit
Florida, as a witness for us here today. Mr. Boone has over 35
years with Farm Credit, 21 which have been with Farm Credit
Florida. Financial institutions such as Farm Credit Florida are
vital to supporting agricultural communities around the country
by providing them with loans and service to help assist their
farmers and ranchers through good and bad times.
For years, Florida has suffered from adverse weather and
environmental conditions which have threatened the foundation
of our agricultural industry. Deep freezes, wildfires,
hurricanes and more have made the Sunshine State no stranger to
inclement weather. The agricultural economy in my home district
is no exception. From the 72 million tons of timber destroyed
by Hurricane Michael to the acres of damaged cotton and peanut
lands, affected farm policy and proactive engagement by both
Federal, state and private entities is critical to ensuring
that these crops and their producers remain resilient.
I look forward to the testimony Mr. Boone will deliver to
this Committee on the unique challenge Florida farmers' economy
faces due to adverse weather conditions.
Thank you, Mr. Chairman. And welcome to the Committee, Mr.
Boone.
The Chairman. Today's final witness is Mr. Brandon Willis,
Assistant Professor at Utah State University. He served as the
Administrator of the Risk Management Agency at USDA from 2013
to 2016, and spent that time working at USDA and on Capitol
Hill prior to that. He has an undergraduate degree from Utah
State University, a law degree from the University of Wyoming,
and an LL.M. in agricultural law from the University of
Arkansas. Mr. Willis now sells crop insurance as an agent and
works with Combest, Sell & Associates.
We will now proceed to hearing their testimony. Each
witness will have 5 minutes. Given the number of witnesses and
Members' schedules today, I am going to keep a pretty tight lid
on that. When 1 minute is left, the light will turn yellow
signaling you to start wrapping up your testimony.
Dr. Lubben, please begin when you are ready.
STATEMENT OF BRADLEY D. LUBBEN, Ph.D., EXTENSION
ASSOCIATE PROFESSOR, POLICY SPECIALIST, UNIVERSITY OF NEBRASKA-
LINCOLN; DIRECTOR, NORTH CENTRAL
EXTENSION RISK MANAGEMENT EDUCATION CENTER, UNL, LINCOLN, NE
Dr. Lubben. Good morning. Thank you, Chairman Vela, Ranking
Member Thompson, distinguished Members of the Committee. Thank
you for the invitation to appear before you today and to share
my perspective. I am Brad Lubben. I am an Extension Associate
Professor, Policy Specialist, and Director of our Extension
Risk Management Education Center at the University of Nebraska
at Lincoln.
I have a presented testimony that I share with you, but I
would simply summarize it for the record here today to note
that it is worth highlighting sort of the extent of current
conditions and challenges for producers in Nebraska and
elsewhere. It is worth noting the existing farm income safety
net, a very broad safety net, and all the different tools that
help producers manage that risk and those challenges, but also
the complexities and sometimes even the competition between
different parts of those tools. And I will close with a comment
on risk management education and the need to help educate
producers and ensure that they are positioned to make good
management decisions and to use these tools effectively.
Certainly, you have undoubtedly heard of, and read of, the
losses in Nebraska related to the bomb cyclone event that
occurred in March, about 3 months ago now. Those losses were
dramatic: loss of life, loss of livestock, loss of property,
substantial damage, et cetera. The losses are estimated in
some--by some estimates in the hundreds of millions of dollars
for crops and for livestock. And certainly, the role of
disaster programs and the role of crop insurance are paramount
in helping producers manage and recover from those losses at
present. But still they are dramatic losses, and they will be
highlighted here further on the panel to come.
I talk about the role of crop insurance and the role of
disaster assistance. And importantly, we first look at the
standing disaster assistance programs, the programs that have
been previously authorized in Congress and are administered
through USDA and other departments, but particularly the large
portfolio programs administered through the Farm Service
Agency. Whether it is emergency loans or emergency conservation
programs or the livestock indemnity and other programs, they
have helped producers manage and cope with these losses. But it
is--as I said, it is still a substantial impact.
We could also look at the broader income perspective and
note that current farm incomes were projected substantially
down even before the events of this spring. By many measures,
we are talking about conditions we haven't seen since the
1980s. If you look at real farm income, statistically, we are
talking about the lowest real farm income since the late 1990s,
not coincidentally a period when farm income suffered because
we lost export markets, and we had disaster assistance in
response as well back then.
I mention this broader context of safety net programs.
Think of the Federal farm income safety net as we analyze it
economically. Clearly, the commodity programs are an important
part of that safety net, as is crop insurance, often considered
the foundation of the safety net today. Don't forget the
standing disaster assistance programs, as I mentioned, that
have been previously authorized. We also have the ad hoc
responses, the emergency assistance that was passed here in
Congress just in the last couple of weeks, and the assistance
announced by the Administration relative to trade assistance.
All of those programs provide support to producers. All of
those programs help producers manage the risks they face, but
they also, in some cases, do compete with each other. Crop
insurance has provisions to cover crop losses. When those
losses are relating to market prices, we might also see the
role of PLC and other commodity programs cover the same loss.
We have crop insurance provisions that are mimicked, in some
cases, by disaster programs and the emergency responses as
well.
It is important as we talk about programs to think about
how the programs work together and think about how they might
help producers efficiently manage that risk.
I close by noting this focus on risk management. As I said,
I have the privilege of serving as the Director of our
Extension Risk Management Education Center at the University of
Nebraska at Lincoln. The Center is funded through competitive
funds from USDA's National Institute of Food and Agriculture to
in turn run a regional grants program that funds producer-
focused, results-based, risk management education programs.
Those programs help producers manage a wide range of risk,
marketing to production, to financial, to legal, to human
risks. And it is important that we have producers capable and
able to learn the things they need to help manage those risks
and be effectively positioned to deal with the challenges we
have.
I thank you for the time, and I appreciate and look forward
to any questions.
[The prepared statement of Dr. Lubben follows:]
Prepared Statement of Bradley D. Lubben, Ph.D., Extension Associate
Professor, Policy Specialist, University of Nebraska-Lincoln; Director,
North Central Extension Risk Management Education Center, UNL,
Lincoln, NE
Chairman Vela, Ranking Member Thompson, and distinguished Members
of the Committee, I am honored and thankful for the opportunity to
appear before you today. The topic for today's hearing on ``How Farm
Policy Helps Farmers in Adverse Conditions'' is certainly timely and
relevant. In my role as an Extension Policy Specialist and as Director
of the North Central Extension Risk Management Education Center at the
University of Nebraska-Lincoln, I come before you to share information
on current agricultural conditions, the portfolio of agricultural
policy tools, and the role of risk management education to help
producers manage though the current situation.
You have undoubtedly heard and read of the dramatic flooding and
storm losses in Nebraska that occurred in March as part of the Bomb
Cyclone event. Blizzard conditions hit the western part of the state
while substantial rainfall in the eastern half of the state fell on top
of a large snowpack sitting on top of saturated, frozen soils,
resulting in dramatic runoff and flooding. The storm and resulting
flooding sadly resulted in loss of life, loss of livestock, loss of
property, and catastrophic damage to farmland and grazing land in the
affected areas. While the state and its producers have worked hard to
recover in the 3 months since the storm, we are still tabulating losses
that are expected to be in the hundreds of millions of dollars each for
crops and livestock in the state. Existing farm commodity programs,
crop insurance programs, and standing disaster assistance programs will
help fill the void as will the ad hoc disaster assistance recently
signed into law. But, they will not completely eliminate the loss nor
the financial challenges that producers were facing even before the
storm event in March.
Based on the work and estimates of USDA's Economic Research Service
released in March, net farm income was projected at $69.4 billion
nationally for 2019, up from 2018, but still 44% below the record of
$123.4 billion set just 6 years ago in 2013. The current economic
downturn has been compared to the 1980s for reference, and in real
terms, national farm income projections have been at multi-year lows
not regularly seen since the 1980s, although the recent average is
comparable to the late 1990s-early 2000s. In Nebraska, the downturn has
been even more dramatic with projected farm income for the state at
just $2.4 billion in 2019 based on our own extrapolation of U.S. data
to the state level (USDA-ERS estimates at the state level are only
available through 2017 at present). That number is up from 2018 as
well, but is still off by \2/3\ from the $7.4+ billion record farm
income in 2011 and again in 2013. Like the United States as a whole,
real net farm income in Nebraska is at its lowest level since the late
1990s-early 2000s, a period not so coincidentally, when farm income
suffered due to lost export market demand and Congress responded with
ad hoc emergency assistance.
It should be noted that these farm income projections were made as
of early March amid continued trade conflict and uncertainty, but
before the storm events and dramatic flooding losses this spring and
before the continued wet conditions hampered planting progress to date.
The damage in Nebraska was dramatic, although we have witnessed the
strong resiliency of Nebraskans with recovery underway. That is thanks
in part to relief from standing disaster assistance programs, including
a wide portfolio of Federal programs authorized in previous legislation
and implemented through USDA, particularly the Farm Service Agency. The
standing disaster assistance programs have provided a range of needed
help, from emergency loans to assistance for repairs of storm and flood
damage to partial reimbursement for lost feed and livestock.
Crop insurance programs and particularly prevented-planting
coverage have also provided substantial protection for producers facing
the challenge of late planting or no ability to plant at all.
Unfortunately, there are many areas where prevented planting is
widespread, including areas of Nebraska that are still flooded along
the Missouri River, but even more so in Iowa and Missouri along with
flooding and wet conditions in other parts of the country. Crop
insurance plays an important role in providing assurance to these
producers in a time of stress and uncertainty. However, there are also
many lingering questions about the interaction of crop insurance,
planting decisions, and both the agricultural disaster assistance
recently passed by Congress and the Administration's announcement of
additional trade assistance for producers.
In a larger context, the Federal farm income safety net provides a
broad mix of support and protection for producers, including commodity
programs, crop (and livestock) insurance, and standing disaster
assistance programs as well as any ad hoc assistance programs such as
the recent developed agricultural disaster assistance and trade
assistance programs.
Commodity programs authorized in successive farm bills provide
income support and risk protection for producers of program
commodities. Crop producers face a new enrollment decision later this
year between Price Loss Coverage (PLC) and Agricultural Risk Coverage
(ARC) for the 2019 and 2020 crops, but importantly, those programs will
not provide any potential financial assistance to producers before
October 2020, after the 2019 crop marketing year is complete. Commodity
program support to be paid this calendar year comes from the 2018 crop
program under the previous farm bill and is expected to be smaller by
comparison. On the livestock side, dairy producers are signing up now
for a Dairy Margin Coverage (DMC) program that should provide
substantial protection from the risk of low milk price-to-feed cost
margins. These commodity programs have transitioned greatly since the
first farm bill in 1933, from initial price support and supply control
programs to income support programs with an increasing emphasis today
on managing risk as opposed to directly supporting income.
The increased focus on risk management includes not only the design
of commodity programs, but also the increased investments in crop
insurance. Dramatic growth in crop insurance availability, tools,
coverage, support, and adoption has propelled crop insurance to the
point that it is commonly thought of as the foundation of the farm
income safety net. This success was a large part the reason that crop
disaster assistance was not included when standing disaster assistance
programs were permanently authorized and funded in the 2014 Farm Bill.
Previous ad hoc efforts to deliver ag disaster programs on an annual or
semi-regular basis culminated in the development of multi-year
authorization of disaster assistance in the 2008 Farm Bill, including
the SUpplemental REvenue (SURE) Assistance Program for crop disaster
losses. That authority expired in 2011 and when the 2014 Farm Bill
eventually provided both permanent authority and funding for ag
disaster assistance, SURE and crop disaster assistance were not
included given the broad gains in crop insurance.
While crop disaster assistance was not authorized prospectively in
the 2014 Farm Bill, there have been continued calls for crop disaster
support since, including the effort to pass what became the 2017
Wildfires and Hurricanes Indemnity Program (WHIP) in the Bipartisan
Budget Act of 2018. The current ad hoc agricultural disaster assistance
recently passed by Congress adds to the list, providing support for
crop losses in 2018 and 2019, including crops in storage and prevented
planting losses as well. The ad hoc trade assistance provided in 2018
and announced again by the Administration for 2019 also provides
substantial support for producers for lost market opportunities amid
the on-going trade conflicts and uncertainty.
With the multiple parts and occasionally competing elements of the
farm income safety net, it can be challenging for producers to make
sound and informed management and marketing decisions. While commodity
programs and insurance programs may be the primary parts of the safety
net, the disaster programs and any ad hoc assistance programs can add
to the protection, but also the uncertainty. Prevented planting
coverage under crop insurance is generally straightforward, even if it
is complex. The additional support coming from the agricultural
disaster assistance package is beneficial, but also adds some
uncertainty to the analysis of trying to plant late into unfavorable
conditions versus claiming prevented planting coverage. Add to that the
trade assistance package and discussion of potential, limited benefits
for prevented planting and the complexity for producer decision-making
is compounded.
To support the effective implementation and use of the entire
portfolio of farm income safety net policies and programs, it is also
important to support risk management education that helps producers
make improved decisions. Risk management education has been part of the
policy discussion since at least the 1990s and was formally authorized
in the Agricultural Risk Protection Act of 2000. I have the privilege
of serving as the director of one of the regional centers that has been
competitively awarded funding from USDA's National Institute of Food
and Agriculture to deliver a competitive grants program in our
respective region for producer-focused, results-based agricultural risk
management education projects. Across the country, these projects help
producers manage the full range of marketing, production, financial,
legal, and human risks on their operations. Through more than 1,300
funded projects since 2001, the program has reached hundreds of
thousands of producers and helped them achieve risk management results
that inform their decisions and change their practices to better
position their operation for success.
In conclusion, thank you for the opportunity to discuss current
agricultural conditions and the role of policy tools and risk
management education to help producers manage though the current
situation. I look forward to any questions and comments.
The Chairman. Thank you.
Mr. Ettleman, you may proceed.
STATEMENT OF LEO ETTLEMAN, AG PRODUCER, SIDNEY, IA
Mr. Ettleman. Good morning, Chairman Vela, Ranking Member
Thompson, and Members of the Subcommittee. A sincere thank you
to Congresswoman Axne for inviting me to speak. I am honored to
give a voice to a topic that affects countless Americans across
the heartland.
My name is Leo Ettleman, sixth generation farmer from
southwest Iowa. I was raised \1/2\ mile from the Missouri
River. For more than 100 years, my family has farmed the
Missouri River bottom. When managed correctly, the river
provides a good life and sustains countless people. The recent
catastrophic flooding has been well publicized. What is largely
ignored is the mismanagement in our inland waterways and the
lack of flood control prioritization.
Close to home, I have seen changes made to the management
and flows of the Missouri River. In the mid-2000s, the changes
were accelerated with an update to the river's master manual
and amendment to deprioritize flood control. Since then,
flooding has become more frequent, severe, and costly.
In 2011, we had a breach of the Missouri River levee just
\1/2\ mile from my family farm. The land was devastated. It
took 4 years to clean it up: 2018 was an extremely challenging
year. Rain and high reservoir releases prevented corn and
soybeans from being harvested: 2019 brought significant snow
and ice. This spring's unusually warm weather and record
rainfall was disastrous. This natural disaster was avoidable.
And to continue managing the river the same and expecting a
different outcome is fiscally irresponsible.
Until you witness, and experience, the catastrophic force
of flooding firsthand, you cannot appreciate and understand the
disruption to life and the emotion and the economic toll it
extracts. The flooding is still ongoing and the negative impact
will be felt for years to come.
As I sit before you today, hundreds of thousands of acres
of farmland remain under water. Vital infrastructure like
roads, bridges are impassable. Traffic has been rerouted to
county roads. These two-lane roads were not designed to safely
handle heavy traffic flows resulting in increased traffic
accidents, injuries, and fatalities.
We personally still have 85,000 bushels of grain stranded,
valued at nearly $450,000. Flood water has impacted the first
12" to 14" of these structures. The grain is rotting. As these
supplies shrink, so does the much needed income it represents.
Many operators owe money against the 2018 grain that was
destroyed during this year's flood. Sadly, many won't recover.
If breached levees aren't repaired back to the 100 year
protection level, our crop insurance and farmland could be re-
rated. If it is, we will become high risk, resulting in higher
insurance premiums.
Because of the continuing mismanagement and flooding of the
Missouri River, we no longer forward contract grain, which is
how farmers secure a price for grain that has not yet been
delivered. That is because at any given time, we run a risk of
losing our crop. Lacking the ability to use this simple
marketing strategy puts us at a competitive disadvantage. The
question is, will this disaster affect the change that is
desperately needed?
Moving forward, we must not only rethink how we manage the
Missouri River, but also how we sharpen policy that will shape
agriculture's flooding. If we are to stop the reoccurring
devastating flooding of the past 12 years, flood control must
be the top priority management of the Missouri River. The water
control structures in the channels below the dams must be
rehabilitated.
We must explore more ways to drive more investment into
flood-ravaged communities. Policy can serve as a catalyst and
help make this happen.
It is my hope, sincere hope that Congress acts, acts to
approve USMCA trade agreement; acts to implement the 2018 Farm
Bill, the vastly improved farm safety net; acts to address the
basic infrastructure needs; acts to ensure flood control is the
dominant function of the Missouri River.
Even with the positive ruling in Ideker Farms, Inc., et
al., v. The United States, if actions are not taken, we can
expect larger and more expensive floods. Farm belt bankruptcies
will soar even higher. Farmers in rural communities will begin
disappearing from the map. That is not what this farmer or our
country wants or needs. Let's get to work, reclaim our rivers,
farms, towns, protect the lives and livelihoods of future
generations.
Thank you very much.
[The prepared statement of Mr. Ettleman follows:]
Prepared Statement of Leo Ettleman, Ag Producer, Sidney, IA
Good morning, Chairman Vela, Ranking Member Thompson, and Members
of the Subcommittee. A sincere ``thank you,'' Congresswoman Axne, for
inviting me to speak. I am honored to address you here today. In doing
so, I give voice to a topic that affects countless Americans in the
heart of the Midwest.
Call me biased, but I believe farming is one of our nation's most
noble and rewarding professions. For six generations, the Ettleman
family has farmed the rolling countryside of southwest Iowa. I was
raised on a farm located just a few rods and reels away from the banks
of the Missouri River. For more than 100 years, our families have
farmed Missouri River bottom ground. It is good and productive soil.
When managed correctly, it provides a good life and living for my
family. It also sustains countless others while contributing to the
jobs and economic activity created by production agriculture.
While we make the choice to farm, we have little say over the price
we receive for what we grow, or the multitude of challenges that we
face. Trade disputes. Monetary values. Geopolitical unrest. Pests and
disease. Too much rain. Not enough rain. Ill-timed hail storms and
straight-line winds. These are just a few of the unpredictable events
that hit us financially and emotionally.
We accept this as a part of farming. It's been that way for
generations. Farmers have a history of dealing with challenges. We're
often heralded for our strong work ethic and ability to rise above
problems and persevere. This holds true even when the situation seems
hopeless or the odds of succeeding insurmountable. While having such a
respected brand is humbling, it can sometimes mask the true extent of
the challenges we face and the emotional and financial pain they
inflict.
According to the National Oceanic and Atmospheric Administration,
Iowa's had the wettest 12 month period since official records began in
1895. The catastrophic flooding across farm country has been well-
publicized. What's largely ignored; however, is the mismanagement of
our inland waterways and the effect a lack of flood control
prioritization is having on farmers, landowners, wildlife populations,
commerce and the ability of those who live near rivers to live their
lives.
Before I get into the specifics, let me first thank Congress for
acting and passing much-needed disaster aid. It is greatly appreciated
as it will keep some farmers in business as they wade through this
terrible situation.
Close to my home, I've heard, and more recently seen, changes made
to the management and flow of the Missouri River. These changes go back
to when my dad was born on the home farm and before passage of the U.S.
Flood Control Act in 1944. Since that time, the river and river
channels have been dredged and levies built.
In 2004, these changes were accelerated with an update to the
River's master manual. A subsequent amendment to the manual in 2006
deprioritized flood control.
Since that time, flooding events have become more frequent, severe
and costly. Flooding has occurred along the Missouri River almost every
year since 2007. In 2008, we experienced tremendous damage due to seep
water and blocked drainage.
In 2010, the situation worsened, and come 2011, we had an all-out
levee breach of the Missouri River just \1/2\ mile from our family
farm. Our land sustained devastating scouring caused by the swift-
moving floodwaters. To make matters worse, there was significant sand
and debris deposits. It took nearly 4 years to clean up the mess.
More wet years followed. Last year was extremely challenging with
land drainage blocked because of extended high river flows for 6
consecutive months. Rain water fell and ponded on our land. When
harvest started last fall, our combines sat idle for days on end. Acres
of mature corn and soybeans went unharvested.
Soon, the calendar read 2019, and with it came significant snow and
ice. By early March, unusually warm weather had arrived, allowing us to
bring in the reduced, belated harvest. We suspected the 50 weather and
rain forecasts of up to 3" over a large area would cause trouble.
We weren't wrong. It was 50+ weather and rainfall totals that
surpassed 6-8" in locations throughout the Missouri River basin. The
quick escalation of temperatures and massive amounts of rain on top of
frozen ground over such a large area was a recipe for disaster.
On March 14th, I received a call at 9:00 in the evening. It was a
friend who lives and farms just to the north of us. A levee at river-
mile 601 was over-topping. A wall of water was rushing down river. Our
farm, and thousands of farmers and homeowners were directly in its
path.
We helped evacuate a friend's home that night around 11:00. By
early the next morning, the levee had been breached. We immediately
began evacuating our equipment and spent the next 2 days preparing for
the worst. Roads began deteriorating quickly, complicating and
hindering our efforts to move equipment, let alone stored grain. As the
river's crest moved south, levees continued to fail with no warnings
from the Federal Government. We were out there on our own evacuating
and helping those we could.
Until you witness and experience the catastrophic forces of
flooding firsthand, you cannot fully appreciate and understand the
disruption to life, upheaval of normalcy, and emotional and economic
toll it extracts.
Firsthand examples include:
Grain bins and stored grain destroyed.
Livestock washed away, perished or stranded.
Gates, pens and fences gone.
Crops that went unharvested in the fall of 2018 ruined.
Homes, furniture and memories submerged.
Roads, bridges and railways decimated.
Every year is different. So, too, are the floods. This year, the
devastation came with no warning. Within 3 days, we were inundated with
tremendous amounts of water. Hundreds of homes and businesses were
affected. People didn't have time to act proactively. The losses were
much greater because of this.
The flooding is ongoing, and the negative impact will be felt for
years to come. As I sit before you today:
Hundreds of thousands of acres of farmland remain
underwater.
Vital infrastructure like roads and bridges--lifelines for
farm-to-market commerce--are impassable. They will remain that
way for years. Some will never be repaired. Roads running east-
west are destroyed. It resembles a war zone. Even when the
water goes down, it could be weeks until we can return to our
farms to begin the arduous task of cleaning and repairing.
A strategically important section of the Burlington Northern
Railroad has been closed for months, costing billions in lost
commerce and inefficiencies.
Sections of I-29 remain closed. Traffic that should be
coursing up and down Interstate 29 has been rerouted to county
highways. These two-lane roads were not designed for safely
handling such heavy traffic flows, resulting in spikes of
traffic accidents and motorist injuries and fatalities.
Farmland must be surveyed and determined how it can be
salvaged and when it can return to productivity. Land located
within a mile or so of a levee breach is inundated with
millions of tons of sand--up to 5 in some locations. Massive
trees and other debris litter the landscape. Tons of topsoil
have washed away.
With roads impassable in many locations and floodwaters slow
to recede, we still have nearly 85,000 bushels of grain
stranded. This includes 65,000 bushels of corn and 20,000
bushels of soybeans valued at nearly $450,000. Floodwater has
impacted the first 12-14" of the pile. The moisture along with
warming summer temperatures create the perfect scenario for
rotting grain. So, as we sit on the sidelines, our grain
supplies shrink along with the much-needed income it
represents.
Thousands upon thousands of acres of farmland impacted by the
floods will never be as productive as it once was--another lost income
opportunity. This year's flood will impact farmers like never before.
No one knows for sure when the situation will ease because there are so
many levee breaches. If they aren't repaired back to the 100 year
protection level, our crop insurance and our farmland could be re-
rated. If it is, we could become high-risk, resulting in higher
insurance premiums. That's just one more domino to fall in a long line
of dominos. As each one does, it impacts our families, heath,
livelihood, farms, neighbors, communities and all who depend on our
productivity.
And that's not all. Because of the continued mismanagement of the
Missouri River, we no longer forward contract grain. That's because at
any given time, we run the risk of losing our entire crop. Lacking the
ability to use this simple marketing strategy places us at a
competitive disadvantage to farmers who do not operate near the river.
Storing grain is another important management practice for farmers.
Holding grain rather than selling it directly out of the field at
harvest time helps farm families increase profit opportunities. But
continued flooding destroys grain bins and contaminates the corn and
soybeans within. To help alleviate the situation, we've elevated grain
bins and other structures. However, mismanagement of the Missouri River
renders this approach futile as the waters continue to rise faster than
we can lift our buildings. Many operations owe money against the grain
that was destroyed during this year's flood. Sadly, a good number of
them may not recover. Even though the grain bins and farm buildings are
insurable, they require separate policies for each structure;
therefore, there are annual fees for each policy. Often farmers find it
too expensive to adequately insure their properties.
We know the challenges. We've seen the impact associated with
mismanaging this important river. The question now is: Will the lost
productivity and increased costs of doing business be a sufficient
catalyst for change?
We remain hopeful that they will. I want to recognize Congresswoman
Axne and all who rolled up their sleeves to address some of these
questions and pass much-needed disaster assistance. It will help. But
more, much more, must be done.
In the short-term:
Levee breaches must be closed. That's step one. The Corps'
is working on that as we speak.
We need to get the water off our ground and sand and debris
removed. This will be costly and take time.
Roads and rail must be repaired, and in some cases, rebuilt
entirely.
Long-term, we must not only rethink how we manage the Missouri
River, but also how we sharpen the policy tools that will inevitably
shape agriculture's future.
Sure, Mother Nature plays a role in how we farm. You can't have a
flood without water. But it's how that water is managed when it hits
the ground that's key.
The 1944 Flood Control Act disconnected the flood plain from the
river. If we are to stop the reoccurring, devast[at]ing floods of the
past twelve years, flood control must be moved back to the top priority
of the Missouri River management. The water control structures in the
channel below the dams must also be rehabilitated.
When flood control fails, everything fails.
One vivid example has been repeated attempts to slow the water flow
to enhance fish and wildlife populations by implementing The Missouri
River Recovery Program. While the goal may have been well-intended, the
efforts have backfired. When a river can no longer handle the volume of
water it once did, catastrophic flooding occurs. Often, the flooding
occurs during prime mating and nesting season, which has been the case
again this year. Fish and wildlife populations have been destroyed as a
result.
In 2014, nearly 400 farmers, businessmen, community members, and
other stakeholders filed suit against the United States Army Corp of
Engineers in a Fifth Amendment Takings Case--Ideker, et al., v. USA.
I'm a Bellwether Plaintiff in this case. In March of 2019, we received
a positive ruling for 5 years of flooding--2007, 2008, 2010, 2013 and
2014. This is just one more affirmation that the damage done by the
river's management is real and credible for farmers and businesses like
mine.
It's imperative that Congress understands that even with a positive
ruling, future disasters will occur until flood control returns as the
dominant authorized purpose of the USACE in their management of the
Missouri River. They are a military branch of the United States
Government and they must follow the orders given to them by you, their
boss. Many are depending on you to make sure your orders are followed.
If not, more productive farm ground will be destroyed as will the lives
of those who depend on our productivity.
Furthermore, the river's water quality is terrible. Waste water
treatment plants upriver can't operate when the water levels are so
high. As a result, human effluent is discharged directly into the
river. When flooding occurs, the use of the river grinds to a halt.
Water quality, the land and private property is decimated.
Infrastructure is ruined. Schedules, routines, and one's way of life is
altered.
What my family and neighbors have experienced this year would be
catastrophic during the best of times, so imagine piling two 100
hundred year floods in the same decade on a subset of Americans who
have been living through an extremely difficult period of uncertainty--
trade disputes, retaliatory tariffs and market turmoil. We must explore
ways to drive more investment into flood-ravaged communities. Policy
can serve as the catalyst and help make this happen. It is my sincere
hope that Congress acts.
acts to approve the USMCA trade agreement,
to aid the implementation of a 2018 Farm Bill that vastly
improved farmers' safety net,
to address the very basic infrastructure needs necessary for
commerce, and
to ensure that flood control is the dominant function of the
Missouri River.
If these actions are not taken, we can expect larger and more
expensive floods, Farm Belt bankruptcies will soar even higher, and
farmers and the rural communicates to which they're so closely linked
to begin disappearing from the map. That's not what this farmer--or our
country--wants or needs. Let's get to work, reclaim our rivers, farms
and towns, and protect the lives and livelihoods of future generations.
Thank you, and I am happy to answer any questions you may have.
The Chairman. Thank you, Mr. Ettleman.
Ms. Gerdes, welcome back. And you may begin.
STATEMENT OF RUTH A. GERDES, PRESIDENT, AUBURN
AGENCY CROP INSURANCE, INC., AUBURN, NE; ON BEHALF OF CROP
INSURANCE PROFESSIONALS ASSOCIATION
Ms. Gerdes. Chairman Vela, Ranking Member Thompson, and
Members of the Subcommittee, thank you for having this hearing.
It is designed to help us and get some information to you.
In my agency, we have been working nonstop ever since this
bomb cyclone hit and even before. We are not through it yet.
However, I couldn't have done it without some help from a good
team. I would like to recognize Michael Smith, CEO of ARMtech.
I wouldn't be sitting here today if he hadn't been willing to
send three employees to my office to staff it for my farmers
without his help.
Thank you, Michael.
I know it is not within the jurisdiction of this Committee,
however, I echo what Mr. Ettleman just said. I am deeply
concerned about the levees not being repaired in a timely
manner and what is going to happen to the farmers' crop
insurance in those areas. We could have this unfold again with
billions of dollars in losses.
Of course, what has made this year's worst flood ever is
the fact that we are also dealing with a depressed price. I
have four things that crop insurance has done very well. It is
real and it is bankable protection. Crop insurance is
affordable and a good value to the farmer. It is a cost-share.
That farmer has to put up his own cash in order to buy the crop
insurance.
Crop insurance leverages the farmers' resources. That
leverage is critical. We invest in more technology, better
seed, everything we can do, as Mr. Peterson said, to produce
those bumper crops in the last years. Crop insurance has an
incredible delivery system. As I sit here today, we have
already paid 2019 prevent plant claims to some of our
producers. I don't think that would happen without what is
going on with private industry.
Crop insurance is dynamic and market focused. Without the
508(h) process where we can bring things to the market, we
wouldn't have the revenue policies.
While crop insurance is the most important tool to us, some
things have been done to crop insurance, and the first one
starts with prevent plant. Briefly, OIG at USDA conducted an
audit and concluded, based solely on the 5 years of the highest
prices we have ever had for commodities, that prevent plant
coverage should be lowered. And that happened, and we would
tell you, as CIPA did then, it was a bad idea. How bad of an
idea? One particular farmer, average farmer, in 2012 had $553
an acre in guarantee under prevent plant. With all these
changes forced upon the industry, we are now at $330 on that
exact same farm that has a higher APH.
So it is not surprising to me that prevent plant was
included in this disaster bill.
I want to say something. As a farmer myself, I want to say
I strongly support both the recent disaster packages and the
MFP. When people and farmers are drowning, they don't care who
sends them a life vest. I thank the Members of Congress for
stepping in at this critical juncture for so many farmers.
Crop insurance, simply put, is something we need to work on
as a better way. The reasons for investing in crop insurance as
a better alternative to ad hoc disaster are just as valid today
as when my then-Senator Bob Kerrey, Senator Roberts, Chairman
Stenholm, and Mr. Combest worked to strengthen crop insurance
in 2000.
With that, I want to offer some very specific suggestions.
First, better structure prevent plant coverage so that it can
move with the market. Second, in a true disaster situation such
as we are in now, deal with the enterprise unit for those farms
that will not get the 2020 rule. Third, I would hope the
private industry would step up to try and devise, through crop
insurance, a policy to insure grain from previous years.
Fourth, I say that we have to do something to repair these
levees or none of the other stuff will matter for the farmers
in our area.
I conclude by saying we need to be proactive in crop
insurance rather than reactive. We had many good years of
bumper crops that lulled us to sleep. We saw the shortcomings
this spring. We can improve and avoid ad hoc if we work
together.
Thank you for holding this hearing. I hope the suggestions
are helpful. I will do my best to answer any questions that you
have had and stand as a resource for you and any of your staff.
Thank you.
[The prepared statement of Ms. Gerdes follows:]
Prepared Statement of Ruth A. Gerdes, President, Auburn Agency Crop
Insurance, Inc., Auburn, NE; on Behalf of Crop Insurance Professionals
Association
Chairman Vela, Ranking Member Thompson, and Members of the
Subcommittee, thank you for holding this very important and well-timed
hearing concerning the extraordinarily adverse conditions farmers have
been facing and how Federal farm policy is designed to help our
nation's farmers through these challenges.
I am grateful for the opportunity to present this testimony as a
crop insurance agent serving farmers in one of the most devastated
regions of the country, in eastern Nebraska where we have been deluged
by flooding.
I am Ruth Gerdes, and while I serve as President of the Auburn
Agency Crop Insurance, Inc., I am really just a farm and ranch girl
from Nebraska who loves to take care of my farmer customers.
Some 33 years ago, after nearly losing our family farm, I decided I
wanted to help other farmers avoid the situation we had found ourselves
in after a string of bad weather coupled with some very tough markets.
I got into crop insurance, believing it could prove to be a
powerful tool for farmers. It is still that same belief and passion
that drives me in my work each day. With each and every year, it seems,
my work as an agent becomes both more challenging and fulfilling as the
risks farmers face, and that I help them deal with, are only growing
and becoming more complex.
In addition to working for my farmer clients, I have served on a
number of industry task forces and working groups through the years,
both with grower associations, such as the National Corn Growers
Association and within the crop insurance industry, including the Crop
Insurance Professionals Association (CIPA).
Through the 1990s, I was fortunate to be a part of what I believe
proved to be four seminal fronts in the effort to make Federal crop
insurance what it is today. In 1993, I was active in the effort to have
prevented planting covered to ensure farmers had a safety net in years
like this one where they could not plant a crop. In 1995, I served on
USDA's Risk Management Agency (RMA) Task Force on Actual Production
History (APH) to ensure that coverage more closely approximated
production actually at risk. During this time, I also sold and serviced
the first-ever revenue insurance policies under a pilot program
developed by Dr. Art Barnaby, at Kansas State University, and which now
accounts for about 80 percent of policies. And, finally, in the
depressed period of the late 90s, I served on an Advisory Committee for
then-Senator Bob Kerrey (D-NE) that was instrumental in the development
of the Agricultural Risk Protection Act of 2000 (ARPA)--legislation
crafted in this Committee that was the game-changer in crop insurance
in terms of affordability, access, and quality of coverage.
Within CIPA, I served as Chair of the Regulatory Affairs Committee
of the Crop Insurance Professionals Association (CIPA), an association
of premier and long-serving agents from across the country founded for
the purpose of strengthening Federal crop insurance to better serve the
needs of America's farmers, ranchers, and dairy producers.
I volunteer and serve in these capacities because I care about my
farmer clients, and because I believe in the product I sell. From just
a handful of customers in 1984, the Auburn Agency has grown to serve
more than 2,000 farmers in ten states, with an average coverage level
exceeding 80 percent.
I strongly believe the role farmers play in our society is a noble
one. I understand that Federal crop insurance is about the farmer
first, and I am honored to play a role in helping farmers, ranchers,
and dairy producers learn how to use this vital tool to its maximum
potential.
I hope my testimony today will provide you with some useful insight
to guide the Agriculture Committee as you oversee the administration of
our nation's farm safety net.
2019 Devastation of Midwest Flooding Coupled with Depressed Prices
Today's depressed farm economy combined with this spring's
devastating flooding in the Midwest is an eerie reminder of the very
situation that nearly cost my husband's and my farm more than 30 years
ago. We are now fully into the sixth straight year of recession for
agriculture. The result has been a 50 percent drop in net farm income.
On the ground, I have witnessed not only a tremendous loss in equity
among farmers, but also fading optimism and an alarming reluctance
among farm families to make investments in their operations for the
future.
It is this ``farmers' optimism'' and hope for a better day that has
always made U.S. agriculture a marvel of the world and somehow we must
recover it.
In March of this year, Mother Nature unleashed her wrath on the
Midwest, turning some of the nation's most fertile farmland into a vast
lake. Due to an exceptionally wet winter and the torrential down pours
that began in March, the U.S. is contending with the wettest 12 months
on record.
In my area of southeastern Nebraska, where the Platte and other
rivers drain into the Missouri River, the devastation was truly epic.
By late March swollen rivers and what was formerly known as high
ground--and, thus, safe for grain storage facilities, barns, machinery,
and homes--had been submerged in water. I know that many Americans saw
the flooding on the news. But, as anyone who has ever lived through a
flood can attest, you simply cannot appreciate the devastation until
you have been through it yourself. The living conditions of friends and
neighbors after the flood have been akin to what you might expect to
see on the news concerning an international crisis in some faraway
place. We still have cities and areas without potable water supplies. I
know that it is not within the jurisdiction of this Committee, but I
would add that I am deeply concerned that unless levees are repaired in
short order that this same tragedy will unfold again, adding billions
of dollars more in losses.
The flooding in March was certainly extraordinary. But subsequent
persistent rains added insult to injury. We have all seen the impact on
plantings of corn and soybeans in our area which have lagged far behind
what they would normally be.
Based on recent United States Department of Agriculture's (USDA)
numbers, by June of last year, the top 18 corn producing states
reported a corn planting rate of 96 percent. However, as of June 2, the
USDA also reported that this year's corn plantings in the same 18
states (which constituted 92 percent of the nation's corn acreage last
year) was just 67 percent. The soybean crop was even more grim with a
mere 39 percent planted rate in the top 18 soybean producing states as
compared to last year's 95 percent. As you can see in excerpts from the
USDA National Agricultural Statistics Service Crop Progress Report,
below, Ohio and Indiana had less than a third of the corn crop planted
and soybean plant rates were actually in the teens.
Corn Planted--Selected States
[These 18 states planted 92% of the 2018 corn acreage]
------------------------------------------------------------------------
Week ending
------------------------------------------------ 2014-2018
State June 2, 2018 May 26, 2019 June 2, 2019 Average
(percent) (percent) (percent) (percent)
------------------------------------------------------------------------
Colorado 95 71 78 93
Illinois 100 35 45 98
Indiana 98 22 31 94
Iowa 99 76 80 99
Kansas 96 70 79 93
Kentucky 93 82 87 93
Michigan 78 33 42 87
Minnesot 97 66 76 98
a
Missouri 100 65 69 97
Nebraska 99 81 88 98
North 99 95 97 98
Carolin
a
North 94 63 81 93
Dakota
Ohio 89 22 33 90
Pennsylv 73 66 74 83
ania
South 96 25 44 96
Dakota
Tennesse 98 93 95 98
e
Texas 95 93 96 95
Wisconsi 88 46 58 91
n
---------------------------------------------------------------
18 96 58 67 96
State
s
------------------------------------------------------------------------
Soybeans Planted--Selected States
[These 18 states planted 95% of the 2018 soybean acreage]
------------------------------------------------------------------------
Week ending
------------------------------------------------ 2014-2018
State June 2, 2018 May 26, 2019 June 2, 2019 Average
(percent) (percent) (percent) (percent)
------------------------------------------------------------------------
Arkansas 90 42 54 79
Illinois 93 14 21 84
Indiana 93 11 17 80
Iowa 91 32 41 89
Kansas 77 22 26 53
Kentucky 64 38 49 53
Louisian 97 82 91 93
a
Michigan 62 23 31 73
Minnesot 91 35 51 90
a
Mississi 92 65 80 89
ppi
Missouri 84 12 18 63
Nebraska 94 56 64 87
North 53 52 58 55
Carolin
a
North 86 46 70 83
Dakota
Ohio 79 11 18 76
South 83 6 14 82
Dakota
Tennesse 68 49 64 60
e
Wisconsi 77 20 34 78
n
---------------------------------------------------------------
18 86 29 39 79
State
s
------------------------------------------------------------------------
The only silver lining in this tragic set of circumstances is that
there has been an uptick in crop prices as a result, but this is not
much of a consolation for so many farm families who will have no crop
to sell because they could not get the crop planted. Making matters
worse for these farmers is the fact that the harvest price option was
eliminated from their prevented planted claims in the context of other
``cost saving'' reforms discussed further below.
I know that many farm families are being forced to ask themselves
the same questions my husband and I asked ourselves more than 30 years
ago. Happily, I can confidently say that we have far better farm policy
in place today to help these families through some extremely difficult
circumstances and keep them on the family farm. Federal crop insurance
is certainly the jewel in the crown of U.S. farm policy.
My goal in the remainder of this testimony is to highlight what is
working particularly well in regard to crop insurance and to point out
some of the key areas where can make some improvements. I leave the
discussion of how to improve the title I safety net under the farm bill
to the real experts in the field: our farmers and ranchers themselves
and those who work for them every day in Washington.
Why Crop Insurance is Uniquely Suited to Meet the Needs of Producers
While U.S. farm policy offers a number of risk management tools to
farmers, ranchers, and dairy producers to help them through low prices
and extreme weather events, crop insurance stands out as the single
most important tool that farmers have.
Of course, we heard this throughout last year's farm bill debate
where virtually all of the nation's farm organizations ranked the
protection of crop insurance as the top priority. Why is this? What is
it that makes crop insurance such a vital tool for so many? From my
experience, I would offer five simple reasons:
1. Crop insurance is real and bankable protection. It is a contract
that guarantees a certain amount production of the crop at
market prices, and is tailored by the farmer (working with
his or her agent) to meet the specific risk management
needs of the farm. What's more, after a disaster strikes,
an adjuster will arrive in a timely manner and settle a
claim quickly. No other farm policy is like this. Crop
insurance is so vital that most lenders today will not
extend credit to producers without crop insurance.
2. Crop insurance is priced to be a good value. It requires active
study and participation by farmers (i.e., farmers must
carefully consider what coverage is right for his or her
farm and pay significant premiums for coverage and, thus,
have real skin in the game), but coverage is not cost
prohibitive. We know that multi-peril coverage would be
prohibitively expensive without the public-private
partnership and premium cost-share of Federal crop
insurance which makes insurance affordable to farmers.
3. Crop insurance leverages the farmer's resources. By minimizing
the risk of loss, the farmer is free to use capital on
other improvements that in turn allows him or her to farm
better. Some measure the value of insurance in indemnities,
but the real value is the peace of mind and the freedom it
purchases to make investments in better seed, better
equipment, and so on. Crop insurance has greatly improved
the productive capacity of our farmers.
4. Crop insurance has an incredible delivery system. The unique
public-private partnership encourages competition among
agents and companies to deliver quality products to farmer
customers. Crop insurance has existed since the 1930s, but
it was not until this competitive model was first adopted
in 1980 that the trajectory of crop insurance would put us
where we are today--where nearly all planted acres in the
United States are covered.
5. Crop insurance is dynamic and market focused. To the extent it is
not working as well as it should for a specific crop or
region, farmers producing those crops in those regions have
a way to improve the product through what is called the
508(h) process, named after the section of law that allows
private-sector development of products. Crop insurance has
a history of critical improvements that have been made
using this process.
Where Crop Insurance Can Be Improved
While crop insurance is the most important tool in the farmer's
risk management toolbox, there are some areas where improvements can be
made. We made it through more than a decade without the need for ad hoc
disaster assistance, but Congressional passage of such assistance in
more recent years suggests that there is still work to be done.
In order to ensure that crop insurance is as effective a risk
management tool to hurricane-hit specialty crop producers in the
Southeast, for example, as it is to row crop producers in the Midwest,
we must work to identify and implement key improvements. The great news
is these improvements do not require an act of Congress. Congress has
already provided RMA with the legal authority the agency requires to
address these needs.
Certainly, catastrophic events such as hurricanes, wildfires, and
massive flooding will put any system to the test, but I believe that
effective coverage to insure these kinds of events can be found within
the context of Federal crop insurance. Will crop insurance ever be able
to totally obviate the need for ad hoc disaster? Well, we know that
certain events like Katrina required ad hoc relief for everyone
affected even though most of those affected had home, business, and
auto insurance in effect. But, I do believe with further effort, we can
make the need for ad hoc assistance very rare and less and less costly.
We've already made a lot of headway.
Beyond more effectively addressing certain natural disasters and
specific crop perils, there is another area where crop insurance has to
evaluate how to better serve all farmers and ranchers. As you know, the
competition in agriculture is stiff. And, as the costs of inputs
continue to rise even as prices fall and profit margins become thinner
and thinner, farmers are increasingly taking on more risk in order to
improve efficiency and economies of scale. As a result, it is fair to
say that at no time have the stakes in farming been higher than they
are for farm families today. Farming has always been a gamble, but the
gamble is just a lot bigger today than it's ever been before. Those who
understand this and appreciate the vital importance of crop insurance
need to really think on how crop insurance can better serve farm
families in this new market dynamic.
To put things into the current context, consider this: depressed
crop prices have taken their toll on those fortunate enough to have
produced a crop but they have doubly hurt farmers with no crop. Why?
First, because crop insurance is not meant to make farmers whole in the
event of a loss. There are deductibles farmers must pay, typically
ranging from 15 percent on the low (and most expensive) end, to 50
percent on the high end. But, even beyond this, because commodity
prices are very much a function in determining the value of crop
insurance coverage, lower prices mean lower coverage and lower coverage
means lower recovery on a loss.
The chart below illustrates the price elections from 2011 through
the current 2019 crop year. Price elections reflect the value of crop
insurance by unit of production. As you can see, the value of a bushel
of corn, and therefore that bushel's coverage value, has sharply
dropped. This not only means smaller recoveries on losses but also
translates into trouble securing credit from lenders to produce a crop
or to make improvements on the farm.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In short, crop insurance is vital to farmers and is working. And,
where there are areas in need of improvement, thankfully, RMA has the
legal authority necessary to make these improvements.
That said, had some of the amendments to crop insurance proposed
during the farm bill been enacted into law, I do not believe that I
could be so confident. Proposals that would have reduced access,
affordability, and quality of coverage--including the imposition of
arbitrary pay limits and Adjusted Gross Income (AGI) means testing;
premium rate increases; and, the elimination of the Harvest Price
Option (i.e., replacement insurance)--and proposals that would have
hobbled private-sector delivery through unsustainable cuts were rightly
rejected by Congress because they would have put crop insurance back
where it was prior to 1980: a program dying on the vine.
Though most threats to the program were averted, one change that
was made to crop insurance that has caused serious problems for farmers
this year is with respect to prevented planting coverage. Briefly, the
Office of Inspector General at USDA conducted an audit and concluded
that, based solely on high price-election years when crop prices are
high, the guarantees provided in the prevented planted portion of the
coverage were too high. As a result, RMA lowered the guarantee anywhere
from 5 to 15 percentage points across various major commodities
beginning in 2016, and reduced buy-up options for producers. The
problem is that prices have been dropping dramatically and so,
therefore, did prevented planting (PP) coverage.
In simple terms, a 65 percent PP factor of a 200 bushel corn yield
with a $5.68 per bushel price election and 75 percent coverage level
provides a PP guarantee of $553.80 per acre. In contrast, a 55 percent
PP factor on the same farm but with a $4.00 price election provides a
PP guarantee of just $330.00 per acre. You see the problem.
Not surprisingly, as a result of these changes, prevented planting
supplemental support had to be added to the disaster package. This
means the cost is borne solely by the government rather than through
premiums paid by farmers under crop insurance with companies sharing in
the risk of losses. I think we can and should learn from this.
Support for Supplemental Disaster but Crop Insurance is the Better Way
As a crop insurance agent who fights every day for my farmer
clients, I supported the supplemental disaster package because of the
extraordinary nature of the disasters and the record extent of the
losses. I know this is also true of other crop insurance agents in the
CIPA organization that I represent. Because the stakes are so high and
times have been so incredibly hard on farmers, we support this ad hoc
assistance and the help provided by the Market Facilitation Program.
When people are drowning, they don't care who throws them a life vest.
However, with that said, I also strongly contend that it would be
wise for us to start looking to crop insurance for the answers again--
because it is the better way. We need to think boldly about how it can
be more responsive in more circumstances around both natural disasters
and market disruptions.
Farmers have proven willingness to invest in their own risk
management. They would rather not have to depend on the possibility of
a hand out. While ad hoc disaster serves a purpose by mitigating truly
extenuating circumstances, crop insurance is the viable long-term
strategy that protects farm families year after year, and farmers are
willing to pay for it. The reasons for investing in crop insurance as a
better alternative to ad hoc assistance are just as valid today as
always: it is more cost effective for the taxpayer; every farmer is
helped and can tailor that help to particular needs on the farm; it
enables farmers to secure financing to produce a crop and to make
investments; and, it has an incredible delivery system that will settle
claims in a timely way and allow the farmer to move on and build for
next year.
In this vein, I want to offer my sincere thanks for what was done
in the 2018 Farm Bill. Not only did you preserve and protect crop
insurance, but you provided direction and new resources for the
development of new products to better serve farmers, regions, and crops
with unmet needs. For example, you emphasized critical improvements to
the Whole Farm Revenue Program (WFRP) to make it more simple and usable
for more producers. You laid the groundwork for potential in-season
buy-up products to guard against late season events like hurricanes.
Finally, and very importantly to my agency, you included smart language
seeking to empower farmers who use precision technology. Farmers who
are willing to make investments in technology not only enjoy a more
robust risk management strategy, but also gain efficiencies within
their operations and improve the integrity of Federal crop insurance.
To further build upon the achievements of the 2018 Farm Bill and
particularly to help those who suffered the most under recent
disasters, I would urge consideration of the following:
First, better structure prevent plant coverage so that the factor
can move with the market, but also provide reliable coverage for pre-
plant costs. In short, when prices decline by 40 percent, prevent
planting coverage should not drop by that same amount, because pre-
plant costs do not drop by that amount.
Second, in a true disaster situation, such as this year, allow
farmers the Enterprise Unit premium discount even if the producer
cannot meet the 20 acres planted in two sections requirement. This
would have prevented some acres from being planted this year that
should not have been. It would also provide much needed relief to those
hardest hit. There are many farmers who will not meet the EU
requirements this year due to conditions beyond their control and many
of them do not understand how this will affect them yet (i.e.,
unexpected increases in premiums that they did not bank on and cannot
likely afford). CIPA addressed this and related issues in a June 4,
2019 letter to USDA which has been attached to this testimony.
Third, I would hope the private industry might be unleashed to
explore ways a crop could be covered in the bin against certain perils.
This year's disaster bill rightly covered these losses in the absence
of crop insurance coverage, and where virtually all private farm-level
insurance products excluded losses from rising water.
Fourth, and this is really from my backyard, it is important to ask
what we must do to manage risk for the farmer, companies, or Uncle Sam
when there are holes in the levees. Although levee repairs are not
within the jurisdiction of the Agriculture Committee, their repair is
critical because weaknesses only expose farmers, companies, and the
government to risk.
Finally, I would conclude by saying we need to be proactive in crop
insurance, rather than reactive. We have had many good years where crop
insurance has more than proved its metal and this string of success
lulled us into thinking we already have the solution to every problem
that might arise. This has highlighted some shortcomings where we need
to constantly improve to meet needs. Congress encouraging RMA to
aggressively tackle these shortcomings is important.
Thank you again for holding this timely hearing. I hope these
suggestions are helpful. I will do my best to answer any questions you
may have and stand as a resource to any of you or your staff on these
important issues.
Attachment
June 4, 2019
Hon. Bill Northey,
Under Secretary of Agriculture for Farm Production and Conservation,
U.S. Department of Agriculture
Washington, D.C.
Dear Under Secretary Northey:
On behalf of the Crop Insurance Professionals Association (CIPA), I
write to urge flexibility concerning certain rules governing crop
insurance given the extraordinary circumstances created by this year's
weather and market conditions.
CIPA applauds the Administration for stepping up once again to
mitigate the impacts of unjustified retaliatory tariffs against U.S.
farmers and ranchers through the announcement of the Market
Facilitation Program for 2019.
CIPA also greatly appreciates the efforts made by you and the Risk
Management Agency (RMA) in working to ensure that crop insurance
remains the vital tool on which farmers may always rely, especially in
years of extreme peril such as this one.
Under Secretary Northey, consistent with your ongoing efforts in
this regard, CIPA respectfully requests that the following actions be
taken by RMA:
With respect to prevented planting, CIPA encourages you to
move the ``no harvest'' date for cover crops from November 1 to
October 1 or earlier. There is increasing concern around tight
supplies and a lack of available forage for livestock
producers. CIPA believes that moving this date forward, and
allowing chopping in the field in addition to haying and
grazing, would address the concern in a way that would not have
an adverse impact on crop insurance or the market for forages
but would provide meaningful help to producers. CIPA believes
that announcing this change early would help farmers better
plan and minimize their losses in this very difficult year.
Concerning Prevented Planting, as it relates to the
Enterprise Unit (EU) discount, for those farmers whose ground
is in an area that has received an abnormal amount of rainfall
or is abnormally under water through the planting season, CIPA
strongly urges you to waive the twenty acres planted in two
sections requirement. CIPA agrees that geographic dispersion
lowers risk in the case of prevented planting just as it does
when a crop is planted. However, CIPA also believes that it is
not appropriate for the EU discount to be withdrawn from a
producer who had purchased EU coverage in the case where a crop
clearly cannot be planted in a section because of the excess
amount of rainfall during the planting season or the land is
under water. The prevent planting loss in this instance is
evident and the withdrawal of the EU discount would drive up
the cost of insurance to a level not anticipated or budgeted by
a producer. CIPA believes that offering relief on the ``twenty
in two'' rule for those farmers truly prevented from planting
because their farm received an excessive amount of rainfall
during the planting season or was under water will provide
critical help to those in the greatest need. We fear that
failure to provide relief on this front will appear punitive to
farmers who are among the most impacted by current conditions
and, thus, reflect poorly on crop insurance.
In regard to final plant dates and late planting periods, we
understand and respect the need for clear dates and timelines
for getting crops planted. These are built off long-term
averages and expectations and any exceptions to these should be
weighed very carefully. With that said, 2019 is an exceptional
year with extraordinary rainfall in most regions and cool
temperatures. CIPA therefore urges you to consider extending
final plant dates, late planting periods and even release dates
where appropriate so that farmers can have every option
available to make a crop.
CIPA hopes you will carefully consider these suggestions,
particularly given the extraordinary conditions this year. CIPA stands
ready to answer any questions and to quickly and efficiently relay any
changes or relief provided on these fronts to the growers in the field.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
William Cole,
Chairman.
CC:
Administrator Martin Barbre;
Dr. Robert Johansson.
The Chairman. Mr. Davenport, thanks for joining us again.
STATEMENT OF MICHAEL DAVENPORT, J.D., CHAIRMAN, AMERICAN
ASSOCIATION OF CROP INSURERS; CHIEF
OPERATING OFFICER, RAIN AND HAIL LLC, JOHNSTON, IA
Mr. Davenport. Thank you.
Chairman Vela, Members of the Committee, Ranking Member
Thompson, thank you for the opportunity to testify today.
Congressman Carbajal, thank you for the very kind introduction.
My name is Mike Davenport. I am the Chief Operating Officer
of Rain & Hail, a Chubb company, and we are the largest writer
of Federal crop insurance.
Today, I am testifying on behalf of the American
Association of Crop Insurers, AACI, and currently serve as the
Chairman of the association.
AACI represents every private-sector involved in marketing
and servicing Federal crop insurance. We represent insurance
companies, agents, adjusters, reinsurance brokers, and
reinsurance companies. We have over 5,000 members.
Every year, some part of the U.S. experiences a natural
disaster. Every farmer knows their livelihood is subject to the
whims of Mother Nature. To channel Garth Brooks, farmers'
paychecks depend on the weather and the crops. Many only
harvest one crop a year, meaning one paycheck for a whole year.
For these reasons, the U.S. has crop insurance to help mitigate
production and price risk.
I would be remiss if I didn't thank you, Members of the
House Agriculture Committee, as well as Members of the Senate
Agriculture Committee, for continuing to invest in crop
insurance, most recently with the passage of the 2018 Farm
Bill.
Today, many farmers are facing difficult planting decisions
due to the record rainfall. No farmer likes to decide not to
plant; they all want to help feed us. I can assure you crop
insurance agents like Ruth are working overtime with their farm
clients right now, walking through insurance coverage, helping
them with these difficult decisions.
After the drought in 2012, indemnity payments totaled $17.5
billion. It was a record payout. I am hopeful that the 2019
losses will come nowhere near the 2012 record. But if they do,
crop insurance as an industry stands ready to meet that
challenge.
Last year, farmers paid nearly $4 billion in premiums and
received nearly $7 billion in indemnities. We anticipate the
farmer-paid premium will be a similar amount this year, and it
is way too early to tell what the indemnities will be.
Crop insurance companies will adjust and pay claims as
farmers file them. We will do it quickly and fairly, no
differently than we have in the past. For example, at Rain &
Hail, we paid preventive planting claims in 2018 at the rate of
4.5 days after the claim was filed. We get the money out very
quickly to the farmers, put it in the countryside.
As a national writer, we are also able to bring in loss
adjusters from areas of the country that are not experiencing
high claims to the areas that are so we can more quickly help
farmers. Unlike disaster payments that come months or sometimes
years after the disaster, crop insurance pays quickly.
We would like to highlight four reasons that crop insurance
is a superior risk management tool and important to the farming
community. First, flexibility: Farmers can tailor the coverage
to fit their specific needs, and they have a choice in the
coverage level that they pick, from 50 percent to 90 percent.
Numerous coverage plans are available for over 130 crops.
Insurance plans include yield guarantee protection, revenue
products that provide yield and price protection, area coverage
programs, and Whole Farm Revenue Protection which insures the
entire farming operation.
Second, affordability: Since the government shares in the
risk in administrative costs, growers can purchase crop
insurance at more affordable rates. This cost-sharing
arrangement makes it possible for many growers to secure better
coverage than they otherwise could afford without government
assistance. The result is affordable protection for the growers
and manageable cost for the taxpayers.
Third, availability: Private-sector delivery provides
competitive, localized service for growers. They can purchase
crop insurance from the local agent and company of their
choice. Additionally, private industry competition ensures
prompt service on claims. This widespread availability creates
choice and competition that helps protect and stabilize rural
economies in small towns across America.
Fourth, predictability: Unlike disaster payments, crop
insurance is predictable. Farmers and their lenders know what
their protection is before the growing season starts. Farmers
can use the insurance coverage to secure loans. From the
taxpayer standpoint, crop insurance is more economical than
disaster payments because the grower pays a significant portion
of the cost, again, about $4 billion annually.
In closing, while we are focused on prevented planting
claims right now, we are mindful that the late planting will
create a shorter growing season than normal and will likely
cause additional losses. We are ready to assist farmers as the
season develops. We fully understand the significant job before
us and are ready to fulfill the promises of the Federal Crop
Insurance Program to each and every farmer who purchases a
policy.
Thank you again for this opportunity to testify, and I look
forward to answering your questions.
[The prepared statement of Mr. Davenport follows:]
Prepared Statement of Michael Davenport, J.D., Chairman, American
Association of Crop Insurers; Chief Operating Officer, Rain and Hail
LLC, Johnston, IA
Good morning, Mr. Chairman and Members of the House Agriculture
Subcommittee on General Farm Commodities and Risk Management. My name
is Mike Davenport and I am the Chief Operating Officer of Rain and Hail
LLC, a Chubb Company. Rain and Hail is one of the U.S. Department of
Agriculture (USDA) Risk Management Agency's (RMA) Approved Insurance
Providers (AIP), writing nearly $2 billion of premium in 48 states.
Furthermore, Rain and Hail has marketed and serviced Federal crop
insurance policies throughout the history of the public-private
partnership, which was authorized by the Federal Crop Insurance Act of
1980. We are celebrating our 100 year anniversary of serving the
American Farmer this year and are the largest writer of Federal crop
insurance.
Today, I am testifying as Chairman of the American Association of
Crop Insurers (AACI). A trade association with membership unique to the
crop insurance industry that includes all private-sector business
components involved in marketing and servicing the Federal crop
insurance program. On behalf of the Board of Directors and members of
AACI, I want to thank you for scheduling this hearing and the
opportunity to provide comment on how farm policies--such as crop
insurance and disaster programs--assist farmers in adverse conditions.
Although Federal crop insurance has been around since 1938, it
wasn't fully utilized until almost 60 years later. During this time,
natural disaster management typically came in the form of ad hoc
disasters bills which were slow in delivering assistance, very costly,
and relied completely on taxpayers to fund. It was the legislation
created in 1994, 2000 and 2014 that helped kick start involvement from
the private-sector, made the program more actuarially sound, encouraged
participation, and improved availability of coverage. With the
continued bipartisan support for the public-private partnership crop
insurance provides, farmers are able to receive a reliable and cost-
efficient safety net to protect both themselves and the future of
farming.
Every year some part of the U.S. experiences a natural disaster.
Farmers know their business is subject to the whims of Mother Nature.
Every year farmers intend to grow and harvest a crop. For this reason,
the U.S. has a crop insurance program to help farmers mitigate
production losses and to some extent price risk. I would be remiss if I
didn't thank you, Members of the House Agriculture Committee as well as
Members of the Senate Agriculture Committee for continuing to invest in
crop insurance, most recently with the passage of the 2018 Farm Bill.
Thank you.
Crop Insurance: Flexible, Affordable, Available, Predictable
Crop insurance is the premier risk management tool for the American
farmer. A number of factors combine to make crop insurance the
cornerstone of many farmers' financial and risk management plans: the
ability to tailor coverage to their own operation at a meaningful level
and affordable price, the comfort of working with a local and trusted
insurance professional and the knowledge that crop coverage is in place
and can be counted on for financial planning purposes. Throughout time,
these crop insurance benefits have accounted for the success and
acceptance of the program and will continue to do so well into the
future.
Flexible--Farmers can tailor their coverage to fit the needs of
their specific operation. They have a choice of coverage levels that
range from 50% to 85%. Numerous coverage plans are available for a
variety of crops, including Multiple Peril Crop Insurance yield
guarantee protection, revenue products that provide yield loss and
price protection, and area coverage programs, which provide broad-
based, simple yield or revenue protection on a county basis. The
variety of coverage and product levels that are available provide
growers with the opportunity to obtain the coverage that best fits
their own operational and risk management needs.
Affordable--Because the government shares in the risk and
administrative premium costs, growers can purchase crop insurance at
more affordable premium prices. This cost-sharing arrangement makes it
possible for many growers to secure better coverage than they otherwise
could afford without government assistance. The result is affordable
protection for growers and manageable costs for taxpayers.
Available--Private-sector delivery provides competitive, localized
service for growers because they can purchase crop insurance from the
local agent of their choice. Additionally, private industry competition
ensures prompt service on claims. This widespread availability creates
choice and competition that help protect and stabilize rural economies
and small-town businesses across America.
Predictable--Unlike disaster payments, crop insurance is
predictable. Farmers, and their lenders, know what their protection is
before they plant their crop. From the taxpayers' standpoint, crop
insurance is more economical than disaster payments because the growers
pay a significant portion, around $4 billion annually, of the cost
themselves. The public cost share of the program is a manageable budget
item for the government, while disaster payments are normally an ad hoc
item subject to funding availability. Crop insurance also assures a
stable and secure food supply--an important component of national
security.
The bottom line is that the crop insurance program is successfully
meeting the needs of thousands of farmers who can tailor their risk
management needs to serve them best with the help of a local agent.
This protection represents a good value for America's taxpayers when
compared to other alternatives for addressing shortfalls in agriculture
production.
In closing, I want to assure the Committee we are ready to work
prevented planted insurance claims as soon as farmers file their
claims. This will timely and efficiently infuse capital into farming
operations and rural communities. As an industry, we are prepared
financially to pay any and all legitimate claims. While we are focused
on prevented planted claims right now, we are also mindful that the
late planting will create a shorter growing season and are ready to
assist farmers as the season develops. We fully understand the
significant job before us and are ready to fulfill the promises of the
Federal Crop Insurance Program to each and every farmer who purchased a
policy. Thank you again for this opportunity to testify and I look
forward to answering your questions.
Why U.S. Crops Fail--2018
The chart below illustrates what caused crops in the U.S. to fail
during 2018. 2018 was a fairly typical year for crop losses in the U.S.
Some of the largest causes of crop failure are excess moisture and
drought. Excess moisture can severely damage a crop, significantly
reduce quality and lead to other issues such as prevented planting.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
``Other'' includes but is not limited to: Wildlife, Cold
Winter, Other, Snow, Lightning, Fire, Mycotoxin, Insects,
Failure of Irrigation Equipment, Volcanic Eruption, House Burn
(Pole Burn), Tornado, Excess Sun, Inability to Prepare Land for
Irrigation, Earthquake, Cyclone, Falling Numbers, Asian Soybean
Rust, Storm Surge, Ice Flow, Federal or State Ordered
Destruction.
Source: RMA Cause of Loss Historical Data Files https://
www.rma.usda.gov/SummaryOfBusiness/CauseOfLoss.
Crop Insurance Basics
Government Involvement
Crop losses tend to be correlated, unlike other insured losses that
tend to be independent, random events. For example, when drought
strikes, it generally impacts a large geographic area. This tendency
toward correlation of crop losses prevented the commercial development
of Multiple Peril policies for many years. For insurance companies,
correlation of losses means capital requirements are higher in order to
maintain adequate reserves to cover widespread losses. For farmers,
correlation of losses means premiums are unaffordable. Generally, when
a single event occurs that results in multiple losses, insurers refer
to the event as a catastrophe. In crop insurance, catastrophic losses
are the norm rather than the exception.
Conversely, a private market has existed since the early 20th
century for Crop-Hail and Fire insurance because these losses are not
generally correlated across wide geographic areas. Production risk
varies significantly across the country. Without government
involvement, producers in high-risk production areas would have fewer
affordable risk management options.
Production History Determines Coverage
The farmer's yield history for the unit to be insured (the Actual
Production History, or APH) determines the grower's premium rate as
well as the grower's yield guarantee. Farmers document their yield
history and the APH is the simple average of 4-10 years of historical
yields for the insured unit. Farmers who lack 4 years of yield records
can still get crop insurance by using a Transitional or T-Yield. To
calculate the T-Yield, the insurer can offer coverage based on the
county 10 year average as determined by the National Agricultural
Statistical Service (NASS).
Yield and Price Coverage
Farmers are able to insure historical production. The MPCI
guarantee is the product of the farmer's APH and the selected coverage
level. Coverage levels range from 50% to 85%, in 5% increments (80% and
85% coverage levels are not available in all areas). Separate coverage
levels may also be elected between an irrigated practice and a non-
irrigated practice for the same crop/county. The chosen coverage level
sets the farmer's deductible. For example, if the 65% coverage level is
elected, the deductible is 35%. Any covered loss greater than 35%
results in a loss payment. Revenue protection, now the most popular
choice of coverage (see tables below) offers comprehensive protection
through a dollar guarantee based on commodity exchange prices. Revenue
protection also provides prevented planting and replant protection. A
projected price is used to calculate premium and a harvest price is
also calculated. Claims are calculated from the higher of the projected
or harvest price.
Liability
The liability is the maximum amount the farmer could collect if the
yield is zero. Per acre liability is equal to approved yield multiplied
by coverage level, price and insured share. For example, for a soybean
farmer who elects a 75% coverage level, has an approved yield of 50
bushels per acre, elects a price of $10.00 and has a 100% insurable
share, liability would be: 50 0.75 $10.00 1.0 = $375.00 per acre.
Premium Determination
The premium is the annual cost paid by the producer for insurance
protection. A portion of the premium is discounted by the Federal
Government. The premium is a proportion of the liability and is
determined by multiplying the liability by a premium rate. The MPCI
rate, which is set by the USDA, is an average based on the historical
loss experience of crop insurance participants growing the crop in the
county. This average rate becomes the basis for determining an
individual farmer's premium rate. A farmer's rate depends on the
relationship between his APH for the crop and the average yield in the
county. Lower yields, assumed to be riskier, receive a higher rate;
higher yields are assumed less risky and receive a lower rate. Rates
are also adjusted for unit size. Unlike other insurance programs, the
crop insurance premium is not paid when insurance coverage begins.
Rather, the premium is due and payable after the crop has been
harvested or when an indemnity payment is made, whichever is earlier.
This setup provides farmers a benefit since they do not have to pay the
premium up front. On the other hand, crop insurance companies are not
able to earn interest on premium collections as they do for other
insurance products.
Premium Assistance
The Federal Government provides two basic form of assistance for
crop insurance: providing a discount for producer premiums and
providing reinsurance for high-risk production areas. The premium
assistance has two components: (1) Assistance of the premium associated
with production/price risk; and (2) In lieu of risk premiums being
expense loaded, the Federal Government pays Administrative & Operating
(A&O) costs on behalf of the farmer. A&O payments have steadily
declined since 1995, when they were set at 31.0% for MPCI buy-up
coverage and 14.0% for CAT. A&O payments do not cover all of an
approved insurance companies' expense. As A&O payments have declined
over time, these expenses have continued to increase with insurance
providers being burdened by additional Federal requirements. Because
expenses tend to increase over time but A&O payments are essentially
locked-in under the terms of the SRA, the shortfall is expected to
increase in future years.
Prevented Planting Coverage
Given the extremely wet weather the U.S. has experienced this year,
I though a more detailed explanation of prevented planting (PP)
coverage would be helpful. PP is defined as the failure to plant the
insured crop by the final planting date designated in the Special
Provisions for the insured crop in the county, or within any applicable
late planting period, due to an insured cause of loss that is general
to the surrounding area and that prevents other producers from planting
acreage with similar characteristics. Failure because of uninsured
causes such as lack of proper equipment or labor to plant the acreage,
or use of a particular production method, is not considered prevented
planting
Insurability
The acreage must be insurable; meaning it has been planted and
harvested or insured in at least 1 of the 3 previous crop years. The
cause of loss must also occur within the insurance periods for:
New Crop Contracts: On or after the sales closing date (3/
15/2019) for the insured crop in the county for the crop year
the application for insurance is accepted;
Renewal Crop Contracts: on or after the sales closing date
for the previous crop year (3/15/2018) for the insured crop in
the county, provided insurance has been in force continuously
since that date.
Final Planting Date, Premium and Filing a Notice of Loss
Producers must be mindful of final planting dates and late planting
periods. A prevented planting notice of loss cannot be filed until
after the final planting date and must be filed within 72 hours of
determining that planting will not be completed within the Late
Planting Period.
The prevented planting coverage level is a percentage
specified in the actuarial documents.
Prevented planting acres must be reported on the acreage
report and the per acre premium is the same as timely planted
acres.
Eligible Prevent Plant (PP) Acres
Eligible PP acres are determined by using the greatest number of
insured acres for the prevented crop in 1 of the last 4 crop years
(2015-2018). This is true for insureds who have grown a crop for which
PP coverage was available. Insureds who have not will have eligible
acres based on an intended acreage report filed by the sales closing
date.
Agents and Insurance Companies
Currently, fourteen companies and nearly 12,000 agents provide
exclusive delivery of the crop insurance program. Insurance agents sell
policies, interact with farmers to determine the best coverage,
calculate the farmer's APH, provide premium quotes, and answer
questions for their clients. Generally, companies do not directly
market policies to farmers. Nearly all policies are sold through an
agent. Insurance companies deliver the program. They contract and train
agents, pay for marketing and advertising, hire and train loss
adjusters, carry out loss adjustment activities, bill and collect
premiums, process and verify applications, conduct APH reviews, process
and verify acreage reports, pay claims, audit and verify claims data,
process and send 1099 forms to farmers and the IRS, pay uncollected
premiums and maintain the necessary automated data processing
infrastructure to communicate data with USDA.
The policy is a contract between the insured and the insurance
company, not the Federal Government. For the farmer to receive the
Federal premium assistance attached to the program, the private
insurance policy must follow the Federal standards and rates. Because
the policy is private, all premiums are owed to and guaranteed by the
insurance companies.
Reinsurance
Reinsurance is risk transfer and makes up an important part of the
Federal Crop Insurance Program. Insurance companies transfer risk to
other insurance companies who are willing to bear risk but are not
necessarily interested in administering an insurance policy.
In addition to private reinsurance, the USDA offers reinsurance
through the Standard Reinsurance Agreement (SRA). The SRA blends two
basic kinds of reinsurance:
(1) Pro-rata (proportional) reinsurance is embodied by two separate
risk pools with varying degrees of risk sharing between
reinsurance companies and the government. These risk pools
are known as assigned risk and commercial funds. Companies
must retain at least 35% of their business nationwide, and
cession limits vary with each state (riskier areas have
higher limits).
(2) Excess of loss or stop loss reinsurance, under which the
government agrees to accept all losses that exceed a
certain loss ratio. These are applied by state funds.
Besides ceding business directly to the USDA, some
companies also secure additional reinsurance from the
private reinsurance market.
Participation Rates by State
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: RMA Summary of Business as of 04/29/2019.
2018 NASS eligible acres used to estimate production for the
2018 crop year.
2017 NASS eligible acres used for AK, CA, CT and SD to
calculate % of eligible acres insured for the 2018 crop year.
2016 NASS eligible acres used for FL, MA and ME to calculate
% of eligible acres insured for the 2018 crop year.
2012 NASS eligible acres used for HI, LA, MS and NV to
calculate % of eligible acres insured for the 2018 crop year.
The percent of eligible acres insured has increased substantially
since 1994. Congress passed the Federal Crop Insurance Reform and
Department of Agriculture Reorganization Act of 1994 which created the
underlying construct of the crop insurance program as we know it today.
Prior to 1994 participation in crop insurance was not sufficient to run
an actuarially sound program and ad hoc disaster bills were almost an
annual occurrence. Congress provided additional premium assistance in
the 2000 Agriculture Risk Protection Act and overtime crop insurance
has become farmers primary risk management tool. As you can see from
the map above, most farmers buy crop insurance, but some still choose
to self-insure.
2018 Participation Data
Protection In Force
Growers are taking an increasingly active role in managing
their farm specific risks.
Revenue coverage is the risk management tool of choice,
accounting for 75% of protection in force in the last decade.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: RMA Summary of Business as of 04/29/2019.
U.S. Crop Insurance Snapshot
----------------------------------------------------------------------------------------------------------------
1994 2015 2016 2017 2018
----------------------------------------------------------------------------------------------------------------
Total Crop 1,047,830 2,237,405 2,206,911 2,183,111 2,162,157
Contracts
Percent Buy Up N/A 95% 95% 95% 96%
Contracts
Protection in
Force:
----------------------------------------------------------------------------------------------
Total $13,608,387,369 $102,531,595,155 $100,622,197,336 $106,090,053,747 $110,123,969,257
Revenue N/A $76,512,714,436 $73,602,944,491 $80,014,705,868 $83,184,852,033
Programs
----------------------------------------------------------------------------------------------
Acres Insured 99,399,759 296,075,647 290,314,686 311,729,708 335,102,096
Percent of 33% 88% 86% 86% 87%
Eligible Acres
Insured
Percent of 33% 82% 81% 81% 83%
Eligible Acres
Insured at Buy
Up
Farmer Paid $694,519,685 $3,678,455,434 $3,461,958,164 $3,716,869,683 $3,629,508,906
Premium
Government Paid $254,876,115 $6,088,843,130 $5,866,046,752 $6,355,547,790 $6,264,127,679
Premium
==============================================================================================
Total Premium $949,395,800 $9,767,298,564 $9,328,004,916 $10,072,417,473 $9,893,636,585
Losses Paid $601,146,242 $6,314,572,680 $3,910,260,359 $5,419,458,122 $6,785,436,220
----------------------------------------------------------------------------------------------------------------
Buy Up is any coverage greater than catastrophic coverage (50/55).
Crops included in area planted are corn, sorghum, oats, barley, rye, winter wheat, durum wheat, other spring
wheat, rice, soybeans, peanuts, sunflower, cotton, dry edib.
2018 NASS eligible acres used to estimate production for the 2018 crop year.
2012 NASS total acres used for HI, LA, MS, NV and WY to calculate % of eligible acres insured in total and at
buy up for the 2015 crop year.
2014 NASS total acres used for CA, ME, MO, TN and WA to calculate % of eligible acres insured in total and at
buy up for the 2015 crop year.
2012 NASS total acres used for HI, LA, MS and NV to calculate % of eligible acres insured in total and at buy up
for the 2016 crop year.
2016 NASS total acres used for CA, CT, ME and WA to calculate % of eligible acres insured in total and at buy up
for the 2017 crop year.
2012 NASS total acres used for HI, LA and NV to calculate % of eligible acres insured in total and at buy up for
the 2017 crop year.
2012 NASS total acres used for HI, LA, MS and NV to calculate % of eligible acres insured in total and at buy up
for the 2018 crop year.
2016 NASS total acres used for FL, MA and ME to calculate % of eligible acres insured in total and at buy up for
the 2018 crop year.
2017 NASS total acres used for AK, CA, CT and SD to calculate % of eligible acres insured in total and at buy up
for the 2018 crop year.
2018 Losses as of 04/29/2019. Final 2018 losses will not be known until well into 2019.
The Chairman. Thank you.
Mr. Boone, please.
STATEMENT OF MARCUS A. BOONE, SENIOR VICE PRESIDENT AND CHIEF
LENDING OFFICER, FARM CREDIT OF FLORIDA, ACA, WEST PALM BEACH,
FL
Mr. Boone. Good morning, Mr. Chairman and Members of the
House Agriculture Subcommittee on General Farm Commodities and
Risk Management. My name is Marcus Boone. I am the Chief
Lending Officer of Farm Credit of Florida, which is part of the
Farm Credit System.
Congressman Lawson, thank you for your kind introduction.
It is a privilege to represent Florida agriculture here today.
Mr. Chairman, I would add I spent several years working for
Farm Credit in your district in the valley and have a deep
appreciation for Texas agriculture. In addition, my first Farm
Credit job was in Tifton, Georgia, hometown of Congressman
Austin Scott. This is a great homecoming for me to share a few
thoughts with you all today.
The Farm Credit System's mission is to support rural
communities and agriculture with reliable, consistent credit
and financial services today and tomorrow. In support of that
important mission, Farm Credit of Florida provides loans to
farmers, rural homeowners, farm-related businesses and other
agribusiness firms in 36 counties in Florida. Our service
territory runs from the Georgia-Florida State line, down to and
including the Florida Keys. We support more than 2,850
customers with $1.2 billion of loans.
Like all Farm Credit institutions, Farm Credit of Florida
is a cooperative. We are entirely owned by the customers we
support, and they elect our board of directors. As the owners
of our cooperative, our customers share in the success of our
organization through patronage dividends. Over the past 5
years, Farm Credit of Florida has returned $50,750,000 in cash
to our customer-owners.
Farm Credit of Florida remains financially strong and is
fulfilling our mission in the current difficult agriculture
environment where prices for commodities remain stubbornly low.
Regardless, we remain committed to working for the best
possible outcome for each customer we serve. Every operation is
different, and we work with individual farmers and ranchers to
help them deal with the current environment.
A critical tool for working with our customers is the FSA
Guaranteed Farm Loan Program. We appreciate your support of
that program and for the 2018 Farm Bill, which increased the
lending caps to $1.75 million. Raising those caps helped better
reflect the modern realities of farming.
In Florida, we are very blessed to serve a territory with
great diversity in agricultural production. We finance
everything from field crops to citrus and other tree fruits. We
finance the equine industry and cattle operations. We support
timber producers and ornamental plant growers. And Florida is
truly a specialty crop state, growing the majority of winter
vegetables Americans consume.
Many of the producers we support generally experienced
favorable operating results across the past two seasons,
despite the repeated severe weather events. Others are
suffering from losses caused by recent natural disasters and
low prices. Despite these difficulties, we remain optimistic
about Florida agriculture. And one of the reasons why is the
strong farm safety net you reaffirmed by passing the farm bill
last year.
As a lender to farmers and ranchers, we fully understand
the value to producers of the Federal Crop Insurance Program.
It allows lenders to finance many agriculture producers,
particularly young and beginning farmers who typically have
less collateral and equity. For many of our customers, crop
insurance is the only real risk mitigation tool available.
When insured at proper coverage levels, crop insurance
provides a comfort level and mitigates risk in an inherently
risky business. The program has always been about helping the
grower recover from a peril by providing a program to recoup a
portion, if not all, of their production costs. Whole Farm
Revenue Protection also plays an integral role in Florida
agriculture, especially for our specialty crop growers.
Overall, the landscape and agriculture across the country
and within Florida continues to challenge producers.
Fortunately, the 2018 Farm Bill reaffirmed the farm safety net,
and we thank you and your colleagues again for providing the
certainty that our nation's farmers and ranchers deserve. We
are also grateful that Congress finally passed much needed
disaster assistance and look forward to its quick
implementation.
As we have done for over 100 years, Farm Credit
institutions remain committed to working closely with each
individual customer to ensure their best possible outcome.
Thank you again for the opportunity to testify, and I look
forward to your questions.
[The prepared statement of Mr. Boone follows:]
Prepared Statement of Marcus A. Boone, Senior Vice President and Chief
Lending Officer, Farm Credit of Florida, ACA, West Palm Beach, FL
Good morning, Mr. Chairman and Members of the House Agriculture
Subcommittee on General Farm Commodities and Risk Management. My name
is Marcus Boone, and I am the Chief Lending Officer of Farm Credit of
Florida, ACA, which is part of the Farm Credit System. The Farm Credit
System's mission is to support rural communities and agriculture with
reliable, consistent credit and financial services, today and tomorrow.
In support of that important mission, Farm Credit of Florida
provides loans to farmers, rural homeowners, farm-related businesses
and other agribusiness firms in 36 counties in Florida. Our service
territory runs from the Georgia/Florida state line down to and
including the Florida Keys; however, our territory generally excludes
the Panhandle region of the state and 13 counties along the I-4
corridor in central Florida. We support more than 2,850 customers with
$1.2 billion of loans outstanding. Northwest Florida Farm Credit
primarily covers the Panhandle and Farm Credit of Central Florida
supports farmers in the center of the state. In total, Farm Credit
provides nearly $5.5 billion in of loans to more than 6,000 Florida
customers.
Like all Farm Credit institutions, Farm Credit of Florida is a
cooperative. We are entirely owned by the customers we support and they
elect our board of directors which sets the strategic course of our
organization. As the owners of our cooperative, our customers share in
the success of our organization through patronage dividends, which
represent each customer's share of our profits. Over the past 5 years,
Farm Credit of Florida returned $50.75 million in cash to our customer-
owners via our patronage dividend program.
Farm Credit of Florida remains financially strong and is fulfilling
our mission in the current difficult agriculture environment. Prices
for commodities remain stubbornly low. Uncertainty in our overseas
markets is impacting demand for many agricultural products. In
addition, multiple years of weather disasters have directly impacted
farmers and ranchers in Florida and many other states.
Regardless, we remain committed to working for the best possible
outcome for each customer we serve. Every operation is different and we
work with individual farmers and ranchers to help them deal with the
current environment.
We are very blessed to serve a territory with great diversity in
agricultural production. We finance everything from field crops to
citrus and other tree fruits. We finance the equine industry and cattle
operations. We support timber producers and ornamental growers. And
Florida is truly a specialty crop state, growing the majority of the
winter vegetables Americans consume. No single agricultural segment
represents more than 17 percent of our lending.
Many of the producers we support generally experienced favorable
operating results across the past two seasons despite repeated severe
weather events. Others are suffering from losses caused by recent
natural disasters and low prices.
Forest producers, along with pecan and peanut growers, were
particularly hard hit by recent hurricanes. Our citrus industry
continues to feel the impact of ``citrus greening'' and hurricanes,
with Florida orange production falling 35 percent this past season
compared to the previous season. Florida dairy producers, like many
dairy producers across the U.S., are trying to survive a prolonged
period of low prices. Hopefully the Dairy Margin Coverage program,
passed in the 2018 Farm Bill, will help. And our nursery producers are
still recovering from the earlier general economic difficulties which
dramatically reduced commercial and residential construction.
Despite these difficulties, we remain optimistic about Florida
agriculture. The U.S. Department of Agriculture (USDA) forecasts a 64
percent increase this season in Florida orange production. The strong
general economy is boosting off-farm employment opportunities for many
farm families. Interest rates remain at historically low levels and
land values remain strong. Florida's climate and growing conditions
allow farmers great flexibility to produce a wide range of agricultural
products.
We temper this optimism with the realistic understanding that
farmers need tools to manage the increasing risks of weather and
markets. We are deeply grateful that Congress enacted a farm bill last
year. The bill continues providing a safety net for our producers--with
title [I] programs and strong crop insurance programs. We also look
forward to full implementation of the new Dairy Margin Coverage (DMC)
program. Florida dairy producers already have utilized the Dairy
Revenue Protection program that the American Farm Bureau Federation
helped create. With the DMC program coming online, we hope our state's
dairy farmers will find more solid financial footing.
As we look to leverage all possible tools to work with our
customers, the USDA's Farm Service Agency (FSA) Guaranteed Farm Loan
program offers a great opportunity. Thankfully, the 2018 Farm Bill
increased the lending caps to $1.75 million. And Farm Credit continues
to support the Beginning Agriculturist Lifetime Employment (BALE) Act.
This legislation would raise those lending caps to $2.5 million,
reflecting the modern realities of farming.
We use FSA guarantees to help support our farmers and continue to
strongly support that program. We find, however, that FSA's complex
requirements can significantly slow the lending process. Especially
when real estate is involved, our state FSA office must go through so
many reviews that it frequently jeopardizes the transaction. Reviews
include tribal land reviews, historical land reviews, fish and wildlife
reviews, requiring a Comprehensive Nutrient Management Plan, etc. This
process typically exceeds the time frame a potential seller of the
property is willing to allow.
As a lender to farmers and ranchers, we fully understand the value
to producers of the Federal crop insurance program.
It is a successful public-private partnership that is federally
regulated by the Risk Management Agency (RMA) and delivered by the
private-sector to help farmers maintain the country's safe, affordable
food supply. A viable Federal crop insurance program also allows
lenders to finance many agriculture producers, particularly young and
beginning farmers, who typically have less collateral and equity.
At a national level, Farm Credit participates in a crop insurance
coalition coordinated by CIRB, the Crop Insurance and Reinsurance
Bureau. This organization benefits from the perspectives of its variety
of partners, which include the American Association of Crop Insurers
and Crop Insurance Professionals Association--both of which have been
invited to testify before this Committee today--along with dozens of
other insurance and commodity organizations.
To help us balance the risk of many of our production loans, we--
and most lenders--require our customers to carry crop insurance. For
many of our customers, crop insurance is the only real risk mitigation
tool available. Florida is susceptible to many forms of adversity,
including freezing temperatures for the central and southern regions
that adversely affect fruit and vegetable production, hail that can
adversely affect production agriculture throughout the state and
hurricanes that bring high winds, heavy rains and flood waters that can
also adversely impact crops, livestock and timber.
Our producers rely on crop insurance to help manage those risks. We
support those efforts by having Farm Credit of Florida retain seven
licensed crop insurance agents on our team. These agents work hard to
help educate our customers, as well as farmers who are not borrowers,
about the crop insurance programs available. They work closely with
producers to tailor the coverage to each specific farming operation.
Even with these natural disasters, convincing producers to purchase
crop insurance at higher than catastrophic levels has been a challenge.
Florida went through a period of 10 years when there was limited
adversity due to natural disasters. With the challenges much of
agriculture faced from the economic recession's impact on the nursery
industry and ``citrus greening'' on the citrus industry, many
agriculture operations sought ways to trim expenses. Unfortunately,
those extra premiums to purchase higher levels of crop insurance often
have been a casualty.
If insured at proper coverage levels, crop insurance provides a
comfort level and mitigates risk in an inherently risky business. Most
of the grower's displeasure with crop insurance is due to not realizing
returns on the premium investment. Growers insured at higher levels,
and therefore guaranteeing higher amounts, were generally satisfied
with the program.
Crop insurance has always been about helping the grower recover
from a peril by providing a program to recoup a portion, if not all, of
their production costs. In Florida, there is a discussion within the
citrus industry that the dollar protection is lagging behind actual
production costs of $1,800 to $2,000 per acre. In some cases, the
grower is not able to recover a useful percentage of their costs. The
current policy is not workable in Florida with the requirement to go
back 3 years to establish a value for the current crop as the impact of
citrus greening and Hurricane Irma will not allow a fair value of the
current crop.
The 2018 disaster assistance legislation asked RMA to make
improvements to the citrus policies. Depending on the outcome of RMA's
research, potential new products could result in better and more
frequently adopted options for citrus growers. RMA also is working on a
hurricane policy, as required by the 2018 Farm Bill. We look forward to
these initiatives bringing some new and more useful products for
Florida growers.
Fortunately, RMA has the ability to make improvements to policy
offerings that expand the program to farmers without legislation. And
the agency is open to feedback and suggestions from its private-sector
partners. It's intentionally flexible to react to producers' needs.
Relatedly, Florida Citrus Mutual has proposed an Actual Production
History (APH) program to supplement the currently available
catastrophic crop insurance program for citrus growers. Ideally,
implementation would occur as a dual transitional program, where
growers can choose between the current dollar (catastrophic) program
and an APH program. RMA has indicated they would consider offering both
programs for a period of time if the need is there for growers. We also
appreciate RMA's work on a new strawberry policy, as well as policies
to replace the current fresh-market tomato, fresh-market sweet corn and
pepper policies offered in Florida.
While Whole Farm Revenue Protection provides revenue protection,
some producers feel that the program is too complicated, expensive and
difficult from an administrative standpoint. It's further challenged by
some the seasonal production cycles of Florida's winter specialty crops
that cross over the year end, causing tax and other financial
complications. It's not a unique problem for a new program, and we hope
it will improve over time. After all, producers want a product that
they could decide the amount of insurance they would want and also have
the option to add a revenue component. And specialty crop producers
generally would like to see the policy provide coverage of the net
revenue (after harvest costs) of the commodities. This would make the
policy more affordable while covering the true revenue risk that
producers have.
For example, during Hurricane Irma, the maximum dollar amount of
coverage for a Valencia orange was $2,425 per acre. With production
costs averaging $2,000 per acre, even at the 85 percent coverage level
that provides only a maximum of $2,061 protection.
The USDA Wildfires and Hurricane Indemnity Program (WHIP) has been
received favorably, but challenges remain. Implementation of the
program and payments to producers took too long, in addition to
cumbersome reporting requirements to demonstrate the impact of the
disaster. For example, Hurricane Irma struck in September of 2017. WHIP
became effective in July of 2018; however, Florida growers were unable
to apply for the program until October of 2018. Payments, themselves,
did not become available until December 2018 and January of 2019.
Market Facilitation Payments have also helped producers across the
country, although their full impact has yet to be realized. For some,
it helped them break even or make a small profit. For many, it helped
them return to the field this year. With farmers and ranchers planting
across much of the country--and those in Florida tending to their
summer crops--we hope new markets will open and certainty returns.
Overall, the landscape in agriculture across the country and within
Florida continues to challenge producers. Fortunately the 2018 Farm
Bill reaffirmed the farm safety net and we thank the Congress once
again for providing the certainty that our nation's farmers and
ranchers deserve. We also are grateful that Congress finally passed
much needed disaster assistance and look forward to its quick
implementation.
As we have done for over 100 years, Farm Credit institutions remain
committed to working closely with each individual customer to ensure
their best possible outcome.
Thank you again for the opportunity to testify and I look forward
to your questions.
The Chairman. Thank you.
Mr. Willis.
STATEMENT OF BRANDON WILLIS, LL.M., ASSISTANT
PROFESSOR, DEPARTMENT OF APPLIED ECONOMICS,
COLLEGE OF AGRICULTURE AND APPLIED SCIENCES, UTAH STATE
UNIVERSITY, LOGAN, UT
Mr. Willis. Chairman Vela, Ranking Member Thompson, and
Members of the Subcommittee, I appreciate the opportunity to
discuss how farm policy helps farmers in adverse conditions. I
commend you for holding a timely hearing on this topic.
My name is Brandon Willis. I am an Assistant Professor in
the Applied Economics Department at Utah State University.
Prior to working at Utah State University, I oversaw USDA's
Crop Insurance Program as the Administrator of the Risk
Management Agency. Before that, I served as Senior Advisor to
Secretary of Agriculture, Tom Vilsack, and was the Deputy
Administrator for Farm Programs at the Farm Service Agency.
Natural disasters inevitably impact agriculture. How and if
we respond to these disasters is where I will focus most of my
testimony.
There are two primary methods to respond to disasters.
First, through the Federal Crop Insurance Program. Second,
through ad hoc disaster assistance. During my time at USDA, I
worked directly on both. I will share thoughts, based upon
those experiences, on how to best respond to disasters, as well
as to conclude with thoughts and suggestions on improving crop
insurance.
A few years ago, we heard from some quarters that farm
policy was no longer necessary and producers could manage the
risk of losses stemming from major disasters on their own.
Today, we know better. I am not suggesting that farm policy is
perfect, but it does get a whole lot right.
Our nation's agriculture policy has benefited America's
farmers, ranchers, and taxpayers. We are stronger because of
these policies and have invested modest amounts into a safety
net for our producers.
Crop insurance is a central part of the success and has
likely kept more of your constituents in business than you
realize. I remember as Administrator of RMA how frequently
farmers would come up to me when I was visiting with them and
say the same thing. And they would say, ``Without crop
insurance, I would no longer be in business.'' Or perhaps the
next generation would come up and say, ``Without crop
insurance, I couldn't have started or taken over the family
business.''
These conversations remind me that, for many people, crop
insurance is the difference between being a farmer or needing
to find another job.
Farm policy has not just benefited farmers, it has
benefited taxpayers and consumers. For example, the percentage
of the total Federal budget comprised by the farm safety net
has fallen significantly over time. Consumers have benefited
from the efficiency of agriculture. According to USDA, since
1948, U.S. agricultural output has almost tripled, up to 269
percent. What is the result? Americans have consistently spent
less of their disposable income on food.
Agriculture policy has also benefited the environment. As a
requirement to enroll in any safety net program, farmers must
comply with certain conservation standards. These standards
have sharply reduced the amount of soil erosion. You cannot
disconnect the success of agriculture from our nation's farm
policy.
I would like to offer a few thoughts, based upon my
experience, on how we could continue to improve farm policy,
and specifically, ideas on how to reduce ad hoc disaster and
save taxpayers money.
Working at the Farm Service Agency, I gained nothing but
respect for the staff that is frequently called upon to deliver
ad hoc assistance to our farmers and ranchers under difficult
timelines. At times, as has been demonstrated recently, ad hoc
assistance is necessary due to extraordinary events and losses.
But efforts must continue to be made to reduce the need for ad
hoc relief through renewed efforts to cover losses through
insurance. Ad hoc is frequently inefficient, inequitable, slow,
and uncertain. Farmers need more reliable options to manage
risk, even if it costs them a little bit more money.
History has demonstrated that Federal crop insurance is a
more effective way to help, not just for the producers, but for
taxpayers. With crop insurance, producers have the confidence
that they can make investments in their operations to remain
efficient and competitive in a world market. It provides
lenders the confidence to let farmers put a crop in the ground.
Finally, farmers are footing approximately 50 percent of the
bill, and insurance is designed only to pay a portion of
losses.
If Congress continues to maintain the goal that insurance
ought to replace ad hoc disaster assistance, I would suggest
redoubling efforts toward the development of new and improved
crop insurance products and risk management education.
Congress deserves credit for improvements in the Federal
Crop Insurance Act made in the 2014 Farm Bill that required new
policies to be improved without some of the bureaucratic red
tape that effectively halted new policy expansion in the past.
Congress should remain vigilant against attempts by the Office
of Management and Budget to burden USDA with new obstacles.
Historically, most of the new products that have been
created by the private-sector have done a tremendous job. That
should continue. In addition, the Risk Management Agency has
the capacity to develop products where the private-sector is
not doing so. And I would suggest we look into that.
Finally, I think increased education by the Risk Management
Agency to educate producers on the value of insurance could be
a benefit.
In conclusion, I appreciate the opportunity to be here
today. I commend your decision to look at farm policy and how
it is responding to adverse conditions, and look I forward to
your questions.
[The prepared statement of Mr. Willis follows:]
Prepared Statement of Brandon Willis, LL.M., Assistant Professor,
Department of Applied Economics, College of Agriculture and Applied
Sciences, Utah State University, Logan, UT
Chairman Vela, Ranking Member Thompson, and Members of the
Subcommittee, I appreciate the opportunity to discuss how farm policy
helps farmers in adverse conditions. I commend you for holding a timely
hearing on the topic.
My name is Brandon Willis. I am an Assistant Professor in the
Applied Economics Department at Utah State University. Prior to working
at Utah State University, I oversaw the United States Department of
Agriculture's (USDA) crop insurance program as the Administrator of the
Risk Management Agency (RMA) from 2013-2017. From 2011-2012, I served
as a Senior Advisor to Secretary of Agriculture Tom Vilsack. And from
2009 and 2010, I was the Deputy Administrator for Farm Programs at the
Farm Service Agency (FSA).
Natural disasters inevitably impact agriculture. How, and if, we
respond to these disasters is where I will focus most of my testimony.
There are two primary methods to respond to disasters. First, through
Federal crop insurance. Second, through ad hoc assistance. During my
time at USDA, I worked directly on both. At FSA, I have helped develop
and administer ad hoc programs. At the RMA, I oversaw all USDA's
insurance programs. I will share thoughts based upon those experiences
on how best to respond to disasters, as well as conclude with
suggestions on improving crop insurance.
Agriculture Policy's Successes
A few years ago, we heard from some quarters that farm policy was
no longer necessary as farm prices were strong and producers could
manage the risk of losses stemming from major disasters on their own.
Today, we know better. Yes, we may find instances where the safety net
could be improved but it gets a whole lot right, too. Our nation's farm
policy has a long history of success and to remain successful we need
to continue working at it.
Our nation's agriculture policy has benefited America's farmers,
ranchers, and taxpayers. We are stronger because of policies that have
invested modest amounts into a safety net for farmers and ranchers.
Federal crop insurance is a central part of this success and has
likely kept more of your constituents in business than you realize. I
remember as Administrator of RMA how frequently farmers would tell me
that ``without crop insurance I would no longer be in business''. And
those who were in their first few years of farming who often said,
``Without crop insurance I could not have received a loan to start
farming.'' Those conversations remind me that for many people crop
insurance is the difference between being a farmer or finding another
job.
When our first comprehensive farm bill was passed in the 1930s, a
significant portion of our population was involved in agriculture.
Today, fewer than one percent of Americans derive their primary source
of income from farming. Tight and often zero or even negative margins
have caused, and efficiency has demanded, fewer people to produce more
food for our nation and for people around the world. Fewer people
producing food means that the risks inherent in agriculture are not
very attractive to most of our population.
As noted earlier, we have heard from some quarters that farm policy
is no longer necessary and that it is stuck in a bygone era. I am not
here to suggest that our farm policy is perfect but I will say it is
pretty good as evidenced by the low cost, high quality, and abundance
of food and fiber that really is the best we have ever known in any
country in history. And our farm policies of the 1930s and our policies
of today do not even resemble one another anymore. What is more, we
spend a lot less on farm policy than we used to just a few short years
ago and the policies in place today are very market-oriented. In fact,
the percentage of the total Federal budget comprised by the farm safety
net has fallen from 1.463 percent in the 1960s to 0.347 percent earlier
this decade and to just 0.26 percent just recently.
The 99 percent of Americans who are not engaged in agriculture have
greatly benefited from the farm safety net and the ingenuity of farmers
and ranchers. Unlike other sectors that are not--in economics jargon--
``perfectly competitive'', the logical response to low prices for a
farmer can, out of necessity, actually be to produce even more in order
to lower the per-unit cost of production in order to stay competitive.
According to USDA's Economic Research Service (ERS) since 1948, U.S.
agricultural output has almost tripled, up 269 percent. USDA's observed
that, ``[a]s a result of this transformation [in production], U.S.
agriculture has become increasingly efficient and has contributed to
the overall growth of the U.S. economy. Output from U.S. farms has
grown dramatically, allowing consumers to spend an increasingly smaller
portion of their income on food and freeing a large share of the
population to enter non-farm occupations that have supported economic
growth and development.'' The data show that the U.S. At-Home Food
Share (i.e., what it costs to eat at home) is the lowest in the world.
In fact, since 1930, Americans have consistently been spending less of
their disposable income on food.
Agriculture policy has also improved the environment for the other
99 percent of Americans. As a requirement to enroll in any safety net
program farmers must comply with certain conservation standards. USDA
has found that these standards have reduced the amount of soil erosion
on farmland. Between 1982 and 1997, excess erosion dropped sharply on .
. . farms [that received Federal farm program payments], and the
reduction in erosion appears to have been larger on farms receiving
payments than on farms not receiving payments, particularly on farms
with wind-erodible soils. Overall, a significant share of erosion
reduction between 1982 and 1997 is likely to have occurred on land
directly subject to conservation compliance requirements. There has
been similar success in terms of wildlife and wildlife habitat and
water and air quality protection.
In short, our farm policy has a record of success. And one of the
reasons for this success is the constant determination of Congress and
USDA to make it better.
In the past few years, at times at the direction of Congress, RMA
has added significant improvements that allow producers to manage the
risk that previously would have been uncovered. For example, the Whole
Farm program was added in 2015 as an option for many producers of crops
where there was no commodity-specific insurance policy; in 2016 a
short-term drought insurance for livestock producers was expanded to
cover the continental U.S.; and in 2018 dairy producers were able to
purchase coverage to protect themselves against unexpected price
declines.
Yet, despite these and countless other examples, there remains work
left to do. The past year has certainly provided new examples where
insurance must be improved to adequately cover all potential disasters.
I would like to offer a few thoughts, based upon my experience, on
how we could continue to improve farm policy, and specifically ideas on
how to reduce ad hoc disaster, save taxpayer money, and provide a more
reliable safety net for farmers utilizing crop insurance.
Working at the FSA, I gained nothing but respect for the staff that
is frequently responsible for delivering ad hoc assistance to our
farmers and ranchers. They move mountains to meet tight deadlines to
help producers in need. At times, as has been demonstrated recently, ad
hoc assistance is necessary due to extraordinary events and losses. But
efforts must continue to be made to reduce the need for ad hoc relief
through renewed efforts to cover losses through insurance. Ad hoc aid
is frequently inefficient and often an inequitable method to deliver
assistance. It is slow and uncertain, with payments sometimes coming
years after losses occur and frequently in a measure that does not
reflect actual losses. Farmers need more reliable options to manage
risk, even if it costs them a little more.
History has demonstrated that Federal crop insurance is the far
more effective way to help. Not just for producers, but for taxpayers
as well. With crop insurance, producers have the confidence that they
can make investments in their operations to remain efficient and
competitive in a world market. It provides lenders the confidence to
let farmers put a crop in the ground. Finally, farmers are footing
approximately 50 percent of the bill and insurance is designed to pay
only a portion of losses. If Congress continues to maintain the goal
that insurance ought to replace ad hoc assistance, as I believe it
should, I would suggest redoubling efforts toward the development of
new and improved products coupled with better risk management
education.
There needs to be a focus on expanding insurance options for
uncovered risks. A stubborn determination and constant attention will
be necessary to continue to improve coverage in this way.
Congress deserves credit for improvements to the Federal Crop
Insurance Act made in the 2014 Farm Bill that required new policies to
be approved without some of the bureaucratic red tape that effectively
halted new policy expansion in the past. Congress should remain
vigilant against attempts by the Office of Management and Budget and
others to burden USDA with new obstacles in administering the program
and in responding to the needs of America's farmers and ranchers.
Congress has invested trust in RMA to expand crop insurance to all
farmers, ranchers, commodities, and regions of the country and any
attempts to limit this charge should be closely scrutinized.
Insurance is at the stage where there is little ``low hanging
fruit'' left to insure. Addressing areas with unprotected risks
requires a thorough understanding of both insurance and the crops
impacted, relationships with impacted growers and grower groups, and
finally, a willingness to think outside the box to develop new
insurance options. It will take unique insurance approaches and a
diligent focus.
Following the devastating losses from hurricanes in Florida and the
Southeast in 2017, I was pleased to see that the 2018 Farm Bill
included a provision that required an effort to develop a policy or
endorsement specifically for hurricanes and tropical storms. If an
effective policy like that had existed at the time, the costly ad hoc
assistance provided for 2017 losses might have been avoided.
Historically, most of the new insurance products have been
developed by the private-sector and approved by the Federal Crop
Insurance Corporation's (FCIC) Board of Directors. This process should
continue as it has many successes. Coupled with this private
development, in cases where significant uncovered risk exists and
private products are not being developed RMA should develop products to
cover these risks. RMA has the expertise to create successful products.
If Congress wants RMA to create options to address uncovered risk,
I believe a relatively small investment will be necessary as the
appropriations process has not kept pace with Congress' expectation for
continued expansion of crop insurance. In 2014, the Agriculture
Committee recognized this fact and provided some funding to help with
program integrity operations. If Congress wants insurance to replace ad
hoc disaster, we need to develop the insurance products now to address
future disasters. A small investment, with clear direction, and an
expectation that results will follow will lead to improved insurance
products. Likely, this will avoid billions of dollars from being spent
on future ad hoc assistance. I can attest that the resources of the RMA
are stretched between day to day operations, compliance activities that
ensure program integrity, and developing new products. Oftentimes, RMA
employees are engaged in all three of these fronts.
Better education and outreach are also necessary to address areas
where there is a new policy or low participation. Frequently when
producers are not enrolling in crop insurance, it is due to a lack of
understanding on how a policy works or clear demonstration of its
value.
To this end, the 2018 Farm Bill also consolidated all risk
management education efforts into the Extension Risk Management
Education centers like the one Dr. Lubben oversees at the University of
Nebraska. These centers will now have additional funding to provide
grants for crop insurance education as well as other risk management
strategies to help producers manage the dynamic business of farming. I
hope that NIFA will quickly make these funds available for crop
insurance education and make sure that expenditures are highly
scrutinized to ensure that the money is well spent in areas that need
education.
Currently, RMA provides education on policy details to Approved
Insurance Providers who, in turn, train agents on policy details.
However, providing information that would help farmers understand the
economic value of insurance is minimal. Further, useful information is
difficult to find for others who could provide education to producers
on insurance, such as state extension.
Now, contrast the lack of information available to farmers with the
information available internally at the RMA. When I was briefed by
staff, I was always impressed with the data and information available
and presented. Unfortunately, most of that information is never made
available to farmers and ranchers.
To address this problem, I would suggest that the RMA program
experts in Kansas City create and offer an annual webinar to any
interested individuals such as extension, agents, and grower groups
where they provide information on new and underutilized programs
utilizing data and information that can be shared publicly that
demonstrates the value of the program and provides necessary background
and history. The information from the webinar should be disseminated to
all attendees to help them further educate agriculture producers.
In conclusion, I appreciate the opportunity to be here today. I
commend your decision to look at farm policy and how its responding to
adverse conditions. I look forward to your questions.
The Chairman. Thank you all for your views regarding this
very important topic. I.
I would like to submit for the record a written testimony
of a fellow Texan and wheat farmer, Ben Scholz, in his role as
President of National Association of Wheat Growers.
[The statement referred to is located on p. 59.]
The Chairman. Members will be recognized for questioning in
order of seniority for Members who were here at the start of
the hearing. After that, Members will be recognized in order of
arrival. I recognize myself for 5 minutes.
The Agriculture Committee has heard time and time again
about the importance of crop insurance for farmers. Today, your
testimony reiterates the need for this robust risk management
option.
In March of this year, President Trump released a budget
for Fiscal Year 2020 that would reduce the average crop
insurance premium subsidy rate from 62 percent to 48 percent,
and would cap underwriting gains for crop insurance companies
at 12 percent.
What sort of an effect would this have on the farm safety
net? And would this be especially problematic for farmers who
have suffered a loss due to natural disaster? Dr. Lubben and
Mr. Willis, why don't you chime in on that question?
Dr. Lubben. Thank you, Mr. Chairman. I appreciate the
opportunity to respond here.
We understand that crop insurance, as it is currently
delivered, is effectively a cost-share between a producer and
the Federal Government. Reducing that Federal portion certainly
puts more of a price on the producer. And all other things
being equal, would certainly reduce participation rates. That
might, on budget, bring down the cost of the crop insurance
program, but that would also put more risk on potential
emergency response and ad hoc assistance from Congress at a
later date.
So reducing participation rates is fully expected, if that
was the move. Reducing participation rates would create more
risk in the industry.
The Chairman. Mr. Willis.
Mr. Willis. The Crop Insurance Act requires that there be
what they call a reasonable reserve. In reality, farmers
actually already pay around 50 percent of the cost. It is often
talked about as being 62, 63. The reality is, in practice, it
is less than that. Farmers are paying more already.
Every year, the President's budget has a long history of
suggesting draconian cuts to agriculture. In the long run, it
will only harm farmers and taxpayers because we end up paying
more through other avenues such as ad hoc. I think you would
find if any of those suggestions were adopted, you would end up
spending more money in the long run.
The Chairman. Ms. Gerdes, when I first met you in Kansas
City, and it was within a month after the flooding, and the
pictures that you shared with me were pretty drastic. I am
curious, what is that looking like now?
Ms. Gerdes. We have since had an additional round of
flooding and it is as bad or worse. We have very little
infrastructure between Nebraska, Iowa, and Missouri. In order
to get to my partner in Rock Port, Missouri, which usually
takes me 20 minutes, now takes me 3 hours, because I either
have to go to Omaha or to St. Joe. Most of that ground is still
under 3 to 5 to 6 of water.
In order to settle some of these claims, we have to use
drones, go on the bluff. We are using some pretty amazing
techniques. Liz Brueggemann, a staff member of mine, a young
agent, took quite an amazing air boat ride. And you all have
the video; it is something to see. We are 4, 5, 6, 7, 8 miles
from the Missouri River and under water.
It is not going away and, unfortunately, for some of you
down river, it is not going to be any better. We are still very
much under siege, Mr. Chairman.
The Chairman. For those of us that are not from the
Midwest, and from a national perspective, can you give us an
idea of the geographic scope of this damage?
Ms. Gerdes. I think you really start up where the Missouri
River starts up in South Dakota and then comes down. You have
Nebraska, Iowa, corner of South Dakota. You come down the
Missouri River, you have Kansas, you have--Missouri as a whole
where the Missouri River cuts across is--the central part of
Missouri is just awash. And then you come in where it dumps
into the Mississippi and it will go all the way down.
The midsection of our country is flooding, along with all
of the rain that you have in Illinois, Indiana.
I have a partner in Ohio, she is going to have massive
prevent plant. You have almost every major river and every
watershed in a flood status in the Midwest and even the eastern
Corn Belt. I have lived and worked there 40 years; I have never
seen anything like this.
The Chairman. Thank you.
I now recognize Ranking Member Thompson, for 5 minutes.
Mr. Thompson. Mr. Chairman, thank you very much.
Members of the panel, thank you for being here, and thank
you for bringing your expertise to Washington. It really helps
us as we prepare and look for future policy decisions related
to what is probably one of, obviously, the most important
committees and important work when you look at the food
security of a nation that we do here on the Agriculture
Committee.
Dr. Lubben, we have heard today mostly about the impacts of
recent weather-related disasters. And certainly, the amount of
rainfall, we are not--and my heart goes out to the folks in the
Midwest with the massive flooding. In Pennsylvania, it just
rains every day, it seems like, and it has for some time. We
may not see the flooding, but we see the impact on agriculture
as well.
Dr. Lubben, you mentioned the downturn in the farm economy
has been plaguing producers for going on 6 years now. Farmers
were, in our experience, in lean times. Can you comment on the
financial position of most farmers generally? And in light of
the widespread losses we may see this year, both price and
yield related, just how precarious is the situation and how
much worse could it be without some of the programs or
assistance we are discussing here today?
Dr. Lubben. Yes. Thank you, Mr. Thompson. I appreciate the
opportunity to add input here.
While this is the strongest, deepest downturn in real farm
income in a couple decades, it fortunately does build from what
was record farm income and a very strong balance sheet. When
you look at the aggregate numbers, the total farm sector
balance sheet still looks very strong, from near record strong
debt-to-asset ratios, very low debt-to-asset ratios that have
been going up, but still very manageable.
But, when you specifically look at the portion of producers
that are leveraged, recognizing that there are many that are
full equity with no borrowing or very little borrowing. When
you look at the segment of producers that have leverage, that
are borrowing, the young, the beginning producer that is
growing, maybe the aggressively growing producer that is
leveraging both equipment and land or exposed to bigger cash
flow needs for rented acreage and so forth, amongst that
segment this is becoming a more challenging circumstance.
Again, I don't have a statistic in front of me; but, we can say
that we are moving from strong positions to moderately at-risk
positions. And for some producers, we are moving from moderate
risk to very substantial risk.
And so without a safety net to depend on, both the
commodity program and the crop insurance program, and the
additional programs as they come out, without that safety net
to depend on, we will see an increased number of producers
dealing with extremely stressful conditions.
We have seen increased calls to our stress hotlines in
Nebraska and elsewhere. We have seen increased evidence of
changes or liquidation, but in aggregate, still a very strong
sector, but certainly with very pointed challenges for some
producers.
Mr. Thompson. Any of the rest of the panel care to comment
to that particular question?
Go ahead, Mr. Ettleman.
Mr. Ettleman. I would just like to add this year's event is
unique to a lot of the others. In 2011, our flood--a historic
flood--came in June, July, so our crop was planted. We lost
that crop. We picked it up: 2012, 2013, and 2014, we had decent
crops and a very good price. We recovered financially.
This year's event will affect a minimum of 3 years. The
2018 crop that was destroyed in the bins. Naturally, this
year's crop, a tremendous amount of prevent plant. Tens of
thousands of acres will not get planted and a lot of
destruction. And then as Ruth pointed out, and I mentioned
earlier, if the levees do not get repaired, we will be at risk
in the future.
Thank you.
Mr. Thompson. How many of you are seeing because of the
amount of rainfall that I monitor--I look at this on a daily
basis, it is impacting corn, soybean plantings and how late it
is. We are kind of past some of the crop insurance dates,
aren't we, or fast approaching it, which gives us risk with if
it is an early fall or depending on frost and the weather,
going forward, and that is going to be an issue for us.
Mr. Chairman, thank you.
The Chairman. Thank you.
Mrs. Craig from Minnesota is now recognized.
Mrs. Craig. Thank you very much, Mr. Chairman.
I have a statement to be submitted for the record as well.
[The statement referred to is located on p. 61.]
Mrs. Craig. Thank you to the Chairman and Ranking Member
for holding this hearing today, and I thank each of the
panelists for being here this morning. This is an incredibly
timely conversation and a much needed discussion, given the
planting conditions throughout the Midwest and my State of
Minnesota.
Before I start, Mr. Chairman, let me say that it absolutely
breaks my heart to see what is going on back home when it comes
to weather uncertainty, trade uncertainty, forage uncertainty.
These folks can't catch a break.
All of you on this panel know we are watching one of the
greatest farm recessions of our time, and not enough people are
paying attention. It is time my colleagues outside this room
show that they care about family farms and the issues they are
facing. Farm country is in a crisis, and it is about time those
of us in Congress act like it. I hope each of us can go back to
our farmers at home, look them in the eye, and tell them that
we hear them and that we mean it.
Thankfully, the work of this Committee in the last farm
bill upheld the cornerstone risk management tool of crop
insurance to be there for farmers when disasters hit, and thank
all of you for being here today to speak to its importance.
As many of you have spoken to, farmers throughout the
Midwest have been fighting wet conditions and flooding. Now
thankfully, my district caught a few dry planting days
recently, but not everyone has been so lucky. I am proud to
work with my colleague, Mr. Dusty Johnson of South Dakota, on
the FEEDD Act to allow additional flexibility in the harvest of
cover crops on prevent plant ground. I am pleased with the
agency's willingness to work with us on this issue, and I am
hopeful that this will soon bring additional relief.
Mr. Davenport and Mr. Willis particularly, can you speak to
the importance of both incentivizing cover crops on prevent
plant acres where possible to build resiliency, but also the
need for forage given this year's wet weather conditions?
I will let you arm wrestle.
Mr. Davenport. Congresswoman Craig, first I would say, as
to the current year, at least according to the reporting this
morning, it appears USDA is going to move that date up to
September 1, which obviously in Minnesota and South Dakota is a
date they really need, because in the past, they have moved
that date up to October 1. But when you get that far north, it
is maybe earlier to actually be able to do something with those
crops. We do feel that is very helpful, given the current
situation.
When you look at a more permanent type of solution and
providing that solution there is, I guess, a lot of moving
pieces to that that we need to really think through, including
how the Secretary is going to determine that there is a feed
shortage and to make sure that that is going to be done in a
consistent fashion, going forward. We do have concerns with the
ability for a farmer to donate the crop and how that would be
sort of monitored to make sure that there is not anything
inappropriate going on.
But, the broad concept of it kind of matches what USDA has
done in the past as far as moving the date earlier in specific
situations where there are shortages of feed.
Mrs. Craig. Mr. Willis, any comments?
Mr. Willis. USDA has come a long way on cover crops. I
think people would be surprised at how much time the Risk
Management Agency has spent trying to make sure that the crop
insurance program works in concert with cover crops that
producers want to plant. I think there is a success story
there.
If what Mr. Davenport says is correct on the September 1, I
think that is a positive thing. In reality, that is something
that Congress needs to spend some time looking at. Because,
certainly, when there are unique circumstances like this year,
you need to help the farmers, you need to help agriculture. At
the same time, you do have to balance that with prevent plant,
and then certainly you want to make sure there is no abuse
there.
So it sounds positive what they are doing. I really think
that Congress should look more into that in the future so that
perhaps we have a more steady policy moving forward.
Mrs. Craig. Thank you both very much for your comments. I
am looking forward to the specifics of the Secretary's
announcement as well this afternoon. And I know Dusty and I are
going to be talking about Congress' role, moving forward.
With that, thank you all, again, for being here.
And, Mr. Chairman, I yield the remainder of my time.
The Chairman. Thank you.
We now recognize Mr. Austin Scott from Georgia.
Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
And, Mr. Boone, the losses in your state were similar to
mine. Our commodities are the same in the areas that the losses
in Florida and Georgia occurred from Hurricane Michael.
The University of Florida and the other estimates that we
saw from Florida with regard to cotton totaled around $50
million. Does that sound about right to you?
Mr. Boone. Yes, sir.
Mr. Austin Scott of Georgia. I want to share a number with
you. The USDA estimate for Florida losses was $12.898 million.
For Georgia, our extension service estimated that our losses in
cotton were between $550 million and $600 million, and yet the
USDA estimate was $300 million.
And just so the Members of the Committee who recognize the
challenge that is created for us, is that we were successful,
much credit to my friend and colleague Sanford Bishop, in
moving from $1 billion, which was the request from USDA for the
losses, to $3 billion, the total amount available for
agriculture--let me stress, that is the total amount available
for agriculture for the 2018 storms, based on additional
information that we had from the University of Georgia, the
University of Florida, the University of Alabama, from local
extension services.
But we have to have estimates from the USDA that reflect
the total losses, so that when we write a disaster bill, the
funding level reflects what is necessary to offset those
losses. And that is something that I simply want to make the
other members on the panel aware of, the discrepancy in what we
had from USDA in the loss estimates and what we saw from the
states.
I want to get to the issue of timber. In Florida, the
timber losses are estimated at $1.3 billion. I want to still go
to you, Mr. Boone, on this. If somebody who is a timber farmer
came to you and said, ``I am going to buy a thousand acres of
land with timber on it, total value is going to be around $3.5
million, I am going to put 50 percent down,'' that would be a
pretty good loan, in your opinion?
Mr. Boone. Yes, sir. Any time a grower is willing to put 50
percent down, it is a good loan.
Mr. Austin Scott of Georgia. What is the value of that land
if that timber is laying on the ground from a storm like
Hurricane Michael?
Mr. Boone. It drops significantly. I don't know an exact
number; but, timber adds a lot to the land.
Mr. Austin Scott of Georgia. I would think in our part of
the world, it would be worth less than $1,000 an acre if that
timber is laying on the ground and you have to pick it up;
because, truly, the timber was worth nothing once that storm
came through.
And that brings me to the next question. How do we improve
the current crop insurance program, to be more helpful for
areas like timber, I will tell you, a pecan orchard, same
thing. If you have a 50 percent equity in a pecan orchard or a
fruit orchard, that would be considered a pretty good debt-to-
equity ratio for a farmer in those types of areas.
How do we create a crop insurance program for specialty
crops like pecans, vegetables, timber, and the other areas
where we saw the shortcomings from Hurricane Michael? That may
be a better question there for the insurance side of things.
Mr. Davenport, they don't adjust for those.
Mr. Davenport. Yes, Congressman Scott. On the timber,
Congressman Lawson asked me about that a few weeks ago, and it
is an interesting situation to think about from an insurance
standpoint, because the way that the timber is handled in the
Southeast is it is a lot of smaller producers like you are
talking about, and they keep the ground for 10 or 20 years;
they are not actively harvesting the timber during that time
period. You are really looking at a very long window that you
would want to have sort of a policy in force for that
particular piece of ground.
It is different than the other products that we offer that
tend to be annualized products. Some of them on pecans, as far
as the crop itself, is a 2 year crop, because the trees are
alternate-bearing trees, so that there are some unique
challenges to think through on timber.
Mr. Austin Scott of Georgia. On pecans, you are talking
about the actual nut, not the tree?
Mr. Davenport. The actual nut, yes. And there is a pilot
program right now on the pecan trees that was just rolled out,
and it is fairly complicated and it needs to be revised for
sure.
Mr. Austin Scott of Georgia. It doesn't work. It doesn't
work.
Mr. Davenport. I would not dispute that.
Mr. Austin Scott of Georgia. It doesn't work.
Mr. Davenport. We didn't design the product; we are just--
--
Mr. Austin Scott of Georgia. Right. Fair enough. My time
has expired. I would just suggest that as we move forward, as
there is more diversity in agriculture with regard to the
crops, we need to find ways to make insurance products
available for these additional commodity groups.
I know my colleague and I, Congressman Scott, have talked
about this, in creating some type of loan program so that when
a disaster happens, people in other parts of the country are
not pushed past planting seasons as our farmers were.
With that, I yield the remainder of my time, which is gone.
The Chairman. I now recognize Mr. David Scott from Georgia.
Mr. David Scott of Georgia. Yes. I would like to just pick
up on the line of questioning of my good friend, Austin Scott.
Because we are going to have to do something about making sure
we have adequate coverage for timber, for our pine trees
especially.
Georgia has a ton of pine trees. All over the South, we
have these trees. Oftentimes, if someone has, let's say, 50
acres of just pine trees, it is almost like a savings account
or maybe help for a child's tuition to college for farmers. And
we are not adequately providing coverage for them.
And with crop insurance generally not available for trees
in that respect, growers have been forced to rely on disaster
assistance, which God knows we know from this recent situation
in Congress, it not only is slow in coming, it is almost
criminal to our farmers the fact of what happened. In the last
couple of years here in Georgia, many of our farmers have not
had a crop, in 2 years, because of back-to-back hurricanes, but
because of the slowness in getting the financial disaster.
My question is, what do you think will be the challenges
and opportunities in creating a crop insurance product for
privately held timber?
Would you share with us? Anybody?
That may be a slight indication of the problem.
Ms. Gerdes. Congressman, I don't----
Mr. David Scott of Georgia. Could such a product be--I'm
sorry. Go ahead.
Ms. Gerdes. I don't know anything about timber, I don't
know anything about pecans, but I have been dealing with crop
insurance for darn near 35 years. The success with any policy
always starts at the grassroots. If you try and push it from
the top down, it doesn't work.
My suggestion would be to get a few agents in your area and
a few farmers that are passionate about this and come together,
come up with an idea, take it to an AIP, all AIPs, NCIS, and
see if you can develop a policy through the 508(h), through
NCIS, something. Because if it comes from the bottom up, you
will have something that works that you can deliver. If it
comes from the top down, it will not work and you can't
deliver.
And that is spoken from somebody that has been on APH task
force changes, trend adjusted yields, and I was very involved
in getting the revenue policies put through. And trust me, I
was told time and time again it couldn't be done.
I don't know anything about your issues, but I know how to
start the process to help you.
Mr. David Scott of Georgia. Do you think that crop insurers
would be interested in such a product?
Ms. Gerdes. They are always interested in a product if
there is a market for it. If there is a need, it can be
developed, but it is going to take some heavy lifting to figure
out how to do that and do it. And you referenced it in your
talk about creating a health savings account.
Maybe that crop is appraised and valued, and it is an
ongoing premium that is paid small amounts every year. I mean,
I am just thinking out of the top of my head.
But I don't know your issue, and I am mindful that through
the Standard Reinsurance Agreement, these companies have to
take risk.
Mr. David Scott of Georgia. We have a problem here. The
farmers out there, when these things happen, we are going to
get floods, we are going to get hurricanes, we are going to get
all of this, and we are not taking the best interests of the
farmer into consideration.
I mentioned earlier the haphazard way and the slowness that
this Congress moves with Federal disaster aid. That is all the
farmer has got. He has crop insurance or he has disaster aid.
Let me ask you, do you see any tension between the disaster
aid and supplemental disaster aid coming from us and the crop
insurance coming from you? Any tensions there?
Ms. Gerdes. I do not see it in my area, because my farmers
understand they cannot rely on ad hoc disaster.
We went from, what, 2005 to 2016 with no ad hoc disaster.
We have already paid farmers for their 2019 prevent plant. They
know the majority of their income is coming from crop
insurance.
We have an exceptional event in our area, and it certainly
sounds to me like you have an exceptional event. We have to be
mindful there is a social perspective that no insurance company
can cover, and that is why we need to figure out a cost-share
and a policy.
It pains me to hear that your farmers in 2018 didn't get
paid. We are already paying our guys in 2019. That is very sad.
We need to step up.
Mr. David Scott of Georgia. Yes. Well, thank you very much.
And our farmers need all the help we can give them. Thank you,
ma'am.
The Chairman. We now recognize Mr. Allen from Georgia.
Mr. Allen. Thank you, Mr. Chairman, and I want to thank all
of you for being here. Because I will tell you that what I hear
from all of my farmers in my district is that the crop
insurance, even under the new farm bill, it will not deal with
disasters; it just doesn't work for disasters, like we have
seen.
They have suggested some ways to improve the crop insurance
program. The big problem you have, the large growers, even in
the timber industry, aren't as concerned from an insurance
standpoint, because they have timber all over the country, all
over the state or multiple states. It is the small growers.
Recently, in Georgia, we have had a number of blueberry
producers. And these are mostly small 500 acre, 1,000 acre
producers. And we have had two major freezes. And, we have had
tremendous growth in blueberry production, but when you look at
the results of this freeze and what it has done to our
producers, all of a sudden they are in serious trouble.
Many of our southern commodities like blueberries are
regional crops, they are concentrated in certain areas of the
state, and those developing the crop insurance products are
just not there; they are not available.
How can we get crop insurance more focused on small,
regional commodities?
Mr. Boone, what would you recommend we do for these folks?
Mr. Boone. For crop insurance, sir?
Mr. Allen. Yes, sir.
Mr. Boone. I am not a crop insurance expert. I am sorry,
Congressman, I am not a crop insurance expert.
Mr. Allen. Right. How about it, Mr. Davenport?
Mr. Davenport. There was reference earlier to the 508(h)
process, which is a process where private companies can submit
products to the Risk Management Agency tailored to specific
crops. RMA also, through the last farm bill, was given specific
direction to look at particular crops and specialty crops as
part of that, and they are doing that.
One product that is currently available that crops that are
not specifically covered under the Crop Insurance Act are
available to purchase is the Whole Farm product, which insures
the revenue for an entire operation. And there is a long list
of things that are eligible under that, I know cut flowers is
one of the things that we have gotten questions about recently.
Hemp will be covered for the 2020 year. It is a product that is
very flexible and can accommodate a lot of different
operations.
So that is probably the best option currently. But they are
constantly looking at other areas to offer new products. And a
big part of that, as Ruth had mentioned, is making sure there
is a market for the product, because we don't want to roll out
a product that nobody wants to buy. And pecan trees was kind of
in that category when it came out. It was a very complicated
product. We sold very few policies, and it doesn't work very
well. RMA is looking at how to make that product work.
Unfortunately, the timing of it wasn't great, because it
was a brand new product, and then we had hurricane losses
coming right after that. I have every expectation the product
will be improved and will get to the point that it works, but
it obviously has some work to do before we are there.
Mr. Allen. Thank you, sir.
Mr. Willis, could you comment on that, as well as in your
written statement, you mentioned the lack of information
available to help farmers understand the economic value of
insurance. And, again, that seems to be a problem, is whether
you buy this or not, are the premiums worth it or not. Could
you address that for me?
Mr. Willis. I can. I appreciate your comments that you said
that some of your smaller, mid-sized farmers are the ones that
really need insurance. And sometimes we hear that insurance
benefits the larger producers. The reality is, my experience is
like yours, in that crop insurance often benefits the small to
midsize who cannot afford to take that kind of a loss.
Moving forward, I have a lot of confidence that these
losses can be covered, if we have a focus on making sure we
cover them. Historically, the insurance program has kind of
taken this off-the-shelf approach, where we take one policy for
one crop and apply it to another. And that has worked very
well, but we are probably to the point where we need to take
different approaches.
For example, if a hurricane is a major cause of loss for
timber or for any other crops, or freeze as a cause of loss,
perhaps we should consider a new approach. Perhaps a policy
that just covered freeze loss for blueberries; perhaps one that
covers hurricane loss.
The final thing on education, if you look at some of these
tree policies, a lot of people are not purchasing them. There
are two problems. First, they are being charged too much, and
so they are making a smart economic decision to not purchase
it; second, they don't realize the losses that could take
place, and they should be purchasing it but they don't see the
value of that policy.
USDA could do a tremendous job. One of the things, when I
was Administrator, I was briefed a lot, and my team sent
tremendous information that showed the value of these products.
That information needs to go to the growers, to the extent that
it can. I think more education to help them see the value,
sending it to agents, companies, and to extension people.
Mr. Allen. Yes.
And, Ms. Gerdes, I like your approach to it, the bottom up
approach, rather than top down.
And, Mr. Ettleman, I am out of time, but I would be
interested in contacting you later to talk about the levees,
and I understand the Corps of Engineers is involved in that.
And I have a problem with the Corps of Engineers on a project
in my City of Augusta, and I need some feedback on your
experience with them out there.
Thank you very much. I yield back.
The Chairman. Mr. Lawson, from Florida, is now recognized.
Mr. Lawson. Thank you, Mr. Chairman.
And welcome to the Committee. And I have been real
impressed with the level of experience that you all have.
And I would say, Mr. Scott, a couple of weeks ago, I was
driving through south Georgia, and I saw a lot of the damage
from the pecan trees. And I was saying how long is it going to
take them to recover? Because it takes so many years to where
those new trees have been planted, I saw a lot of new trees
being planted, to produce.
But my question would be first going to you, Mr. Boone. Can
you explain how the impact of extreme weather changes the way
lenders work with the farmers and ranchers?
Mr. Boone. Yes, sir, Congressman. Farm Credit has been
around for over a hundred years. This is not our first rodeo
when it comes to dealing with extreme changes in weather. One
of the first things that we see when there is a disaster in any
particular area, our regulator sends out a notice to us and
encourages us to use every tool available to us in order to
help that area's farmer and rancher. And fortunately, we do
have a bunch of tools in front of us.
We can do anything from a simple deferment, where we are
putting the interest off, the payments off for a few months or
a year, to a restructure to stretch the loan out, stretch the
terms out to get the payments down, or to even do a more
drastic restructure from the standpoint of setting aside part
of the principal and just work on a part that the operation can
currently support, and then address the balance of that
principal at a later date.
Mr. Lawson. Okay. I really didn't really have a thought on
this until when Michael hit areas of north Florida and south
Georgia, and to see all the problem that happened to the timber
industry, which probably in the state legislature had
represented a lot of those areas for a number of years, still
not really giving it--we were worried more about the redheaded
woodpecker than worried about all of the damages and all trees
that was on the ground.
But what really happened that was brought to my attention
was the number of private growers that planted these trees on
these smaller farms, really for their retirement purposes or to
leave something for their kids. And to see where they don't
have anything to turn to now, because it was--I don't know
how--it was discussed earlier, and David Scott mentioned some
of it, what do we do about educating the private growers that
are looking out for future generations and for their own
retirement that have lost just about all of it, acres and acres
as I go through north Florida and see all of the trees down?
In the past, has that been an interest of anyone in the
crop insurance area about all of these little private tree
owners that we have? Can anyone respond to that?
Mr. Davenport. Congressman, I would say from my
perspective, we had not been asked about timber until, a few
weeks ago was the first time that I had actually been asked
about that. And we have been thinking about it internally as to
how you would go about it.
And as we were talking about a little bit earlier, the
challenge in my mind is that, if you are looking at a 20 year
period that you are going to have the trees, how to structure a
product that makes sense for the grower. You certainly don't
want the grower--sort of like happens in California with
earthquake coverage, people buy it randomly, they will buy it
for a year and then they don't buy it for a couple of years and
then buy it for another year.
And if you are going to truly manage that risk, we are
going to want something in place for them where they actually
buy the product and keep the product for the entire time
period. Because otherwise, it just doesn't make sense to sort
of randomly decide when to purchase it and when not to.
It is a unique challenge, I would say, but I think it is
something that certainly should be looked into.
Mr. Lawson. Okay. My time has almost run out. But how does
Farm Credit stay solvent, with all of the disasters that we
have, particularly in Florida?
Mr. Boone. Well, obviously, the programs that are available
through the USDA, we do use the FSA guaranteed a good bit. We
also are a big believer of the crop insurance program. And so
with the combination of that trilogy there and making safe and
sound loans as much as we can, we are able to pretty much stay
ahead of the game.
Now, Florida, Farm Credit of Florida, as I talked about in
my opening statement, is so diversified that typically when we
have an adversity in one area of our territory, the rest of the
territory is pretty good. We never have had anything that has
really crippled us over the long-term in the hundred years that
we have been around.
Mr. Lawson. Okay. Mr. Chairman, I yield back.
The Chairman. Mr. Crawford, from Arkansas, is now
recognized.
Mr. Crawford. Thank you, Mr. Chairman.
Obviously, I want to talk about crop insurance. I come from
Arkansas. My district accounts for about 50 percent of the U.S.
rice crop. And rice is a tough one to get your arms around with
regard to crop insurance. And so I have been texting back and
forth with some rice farmers back home about what is the
biggest concern. Actually two of them.
The Rice Belt extends from southeast Missouri down to
Texas. That is the medium long-grain. California is a little
bit of a different animal, so I will just stick with the mid-
south Rice Belt.
But the prevent plant deadline in Arkansas is May 25.
Agronomically, what we know and certainly in our latitude, is
that May 15--anything after May 15 is a crapshoot. And that
date doesn't seem to reflect.
Is there any chance we might see some alterations to adjust
those dates latitudinally? Not just for rice, but other crops
in different latitudes where it makes more sense agronomically
to consider that.
Your thoughts on that?
Mr. Davenport. Congressman Crawford, I would say that is
certainly possible. When you look at other crops, those dates
do vary by area. You look at corn and soybeans, and it varies
quite widely depending on where that crop is at. I would say
that is definitely something that RMA could look at and make
changes to.
Mr. Crawford. The blanket approach, this is kind of typical
of Washington. We tend to try to look at things in a one-size-
fits-all context. But I just think there is so much difference
geographically in climate conditions and so on at different
times of the year. Further south, it is not uncommon at all for
them to get a second crop. A ratoon crop is fairly common in
places like Louisiana and east Texas. That is not something
that is common in our neck of the woods. Southeast Missouri and
northeast Arkansas and further south into Mississippi, that is
the exception.
The other issue is, what is not included is row rice. And
that is another complaint that we get from our rice farmers,
across the Belt, is that row rice is not included in crop
insurance.
Any comment on that?
Mr. Davenport. I would, again, from my perspective, say it
is something that could be a program expansion.
Every year, RMA comes out with additional crops that are
insurable, different practices that are insurable. It would
certainly be something that could be expanded.
Mr. Crawford. Okay. One of the other things that we talked
about, and I have heard this referenced throughout the hearing,
is how do you get more people participating in crop insurance.
I mean, bottom line is, insurance like any kind of
insurance, is about an actuary base. Isn't that right? I mean,
expanding the actuary base, spreading that risk over a broader
area?
I understand that there are a depth and breadth of crops
that have to be accounted for and it is not necessarily, just
like I said, one-size-fits-all is not going to answer this
question. But, broadly speaking, expanding the actuary base
seems to me--is there a way maybe that Whole Farm takes a look
at this, maybe some tweaks there to make that up to increase
and improve the uptake on expanding that actuary base and
incentivizing farmers to participate at a broader scale?
Mr. Davenport. Certainly. We think Whole Farm is a product
that we have seen significant growth in the last couple of
years. And as more farmers become familiar with the product and
understand the product, we anticipate that to continue to grow
and to help farmers cover those crops that are more unique.
Mr. Crawford. That is the key there is the understanding
part of it, because it is so complicated. And I think a lot of
farmers are afraid of it, quite frankly.
But it seems to me like if we are really trying to expand
that base and get more people, then we have to do a better job
and be more proactive on communicating just exactly what this
entails, making them understand. Because it is a difficult
thing to get your arms around, just generally speaking.
I appreciate you all being here today. I am going to change
subjects real quick.
Mr. Ettleman, I am going to direct this question to you.
And I appreciate you bringing attention to the connection
between our lock and dam systems and the losses we are talking
about here today.
Isn't directly in the jurisdiction of this Subcommittee,
obviously, but I am on the Transportation and Infrastructure
Committee, and many of us on this Committee serve on that
Committee as well.
In looking across the Federal agencies that you interact
with, are there any additional problems that could be addressed
to help prevent disasters from occurring that farm policy isn't
bearing the brunt on these losses?
Mr. Ettleman. I would like to say on this 2019 event, there
was a complete breakdown right from the start with the weather
forecasting, was a huge issue. On March 6, the National Weather
Service out of Kansas City released a greatly enhanced risk
rating over a large group of tributaries in northwest Iowa,
northeast Nebraska, and northeast Nebraska and southeast South
Dakota. The Platte River, northern Niobrara River, neither one
were on that enhanced list. Seven days later, we had a
disastrous flood out of the Platte River and the Niobrara.
When we pushed the issue, we found out that--we are really
concerned that their modeling is--they are not using the right
models. And also, the modeling is not frequent enough. When you
get in that enhanced risk category, you have to do more
modeling frequently to keep on those conditions, when we are
talking about a bomb cyclone event coming through, that was a
huge event.
Also, the communication from the United States Army Corps
of Engineers, the Omaha District, was nonexistent. In the past
flooding, they were very hands-on, gave us tremendous amount of
warning, worked with our levee state sponsors to let the
citizens of the valley know to evacuate. We had no
communication from the Omaha District this year. When we
finally did get communication, it was not accurate and it was
too late. Issues like overtopping we already knew about 3 days
earlier. It was a complete breakdown from square one.
Thank you.
Mr. Crawford. Thank you. I yield back.
The Chairman. Mrs. Axne.
Mrs. Axne. Yes. Thank you, Mr. Chairman.
And thank you, members of the panel, for being here. And a
special thank you to Leo Ettleman and his wife, Angie, for
being here today. They are from our flooded area in the Third
District in Iowa, and they bring an exceptional amount of
knowledge about the situation that we are facing. They are not
just farmers, but they are also small business owners in the
area. They have felt the impact from an agriculture
perspective, even though specifically where their business is
located wasn't necessarily flooded, traffic isn't flowing well.
People have left the area. We are seeing a major impact on our
rural communities.
I would like to take this a little bit further from where
Mr. Crawford was about the systems, the processes, and the
communications that you have experienced throughout this entire
time.
Just to go back--and I know that there was some information
presented on this. But from January to early March, we had
record snowfall and freezing weather. Just to put it in
context, we had 340 individual city record low temperatures in
the Midwest in 2 days, January 30 and 31, when our temperatures
dropped to as low as ^50.
And then in February, we got about 25" of snow just in the
Des Moines, Iowa, area. Omaha, Nebraska got 27", north of us
about 30". We were inundated with snow and cold weather. Then
hit by the cyclone blizzard, so one of the most intense this
country has ever seen on record.
And the water had no place to go. The ground was incredibly
frozen, of course. Everything was over-saturated from the heavy
snows. And so where did it go? It went to our farmlands and
lowland areas, and today, we are seeing the results of that.
I am very grateful that the President signed the disaster
bill into law. I am thankful that in the House, I was
successful in getting $3 billion of funding specifically for
the Midwest flood, because it is very critical that we address
this.
But as Leo said in his testimony, he discussed that he has
had major flooding before, in particular in 2011, when the
levies breached about \1/2\ mile from your farm, I believe. And
he stated in his testimony, it took 4 years to clean up the
mess, so almost until this last flooding.
My questions and concerns that I have been hearing, and we
have talked in the past, we have a lot of work to do with the
Corps of Engineers, and I am looking forward to working with
Mr. Allen and Mr. Crawford on that. We will table that for a
minute, because we know that there are a lot of communications
issues there.
But I have also noticed that within our own structures, our
departments in government, that there are issues there with our
procedures and processes.
And so, Leo, I would love to ask you, given your
unfortunate experience with flooding, is 60 days an appropriate
timeframe to apply for these important programs?
Mr. Ettleman. In the past, yes: 2011 were unique events.
And the extensions are definitely important, because, even
today, 97 days and counting, this flood has been going on, the
2011 event, 140 days.
We can't get out there for the emergency ECP Program. We
can't get out there to see any damage because there is water on
the ground. We can't get out there to do anything, to recover.
We don't know how much of our grain out there is destroyed in
those bins that are landlocked out there, whether they are
salvageable or not. Extensions are very important, yes.
Mrs. Axne. Okay. What does your farm look like at this
time?
Mr. Ettleman. We have numerous tracts of land, but the home
base, the water is going down, because the Corps of Engineers
are getting that breach plugged. In fact, might get stopped
today, the water is going down.
I-29 opened up 2 days ago from St. Joe to Highway 34. The
entrance and exit ramps are not open, so better have a full
tank of gas when you get on there. There are a lot of over-the-
road trucks getting stranded out there, I know that.
But the roads between are destroyed, to get from east to
west is impossible. Those east-west roads are completely
destroyed.
Mrs. Axne. There is a limited time to be able to see what
you need?
Mr. Ettleman. Exactly.
Mrs. Axne. Another question is, I have heard numerous
stories from folks, small business owners, farmers, and
homeowners alike, that they don't know about all the resources
that they have access to. I know that you are heavily involved
in this. Do you know of people who have no clue about what
things they have access to and how they can find those
resources?
Mr. Ettleman. Yes. The wheels are turning on that. We had a
meeting yesterday with Governor Reynolds on this task force
with SBA and Homeland Security and things like that to get
people, we have had a lot of issues with temporary housing,
getting those trailers into our area where people are
dislodged, some of them living in basements of relatives or
moved out of the area, and they want to get back home, maybe
get out of somebody else's house and get on their own. Getting
that temporary housing has been a huge issue.
But, otherwise, it is a real learning curve when you have
events that long to deal with it. Wheels are turning.
Mrs. Axne. Absolutely.
My time has expired, so thank you. We have so much more to
discuss here, but I want to thank you for being here. I want to
continue this conversation. Within our government entities, we
do not have proper processes and communications in place to
help our families in need.
Thank you.
The Chairman. Thank you.
Mr. Johnson, South Dakota.
Mr. Johnson. Thank you, Mr. Chairman.
And I know I am not telling the panelists anything they
don't know. But, oh, my goodness, did the winter and spring of
2019 push a lot of very hearty producers to the brink, and,
frankly, it kind of pushed the farm safety net to the brink. I
mean, it was just these slow-moving disasters are the hardest
ones to psychologically really wrap your mind around.
I mean, as wet days turn into wet weeks, turn into a wet
month, you just see the days on the calendar, the planting
days, fall away, fall to the side. And people aren't sure, to
the extent that they would be able to get the corn and the
beans in. And although it has been a little bit better in the
last couple of weeks in South Dakota, we are still a long ways
away from where we need to be. You all know that, and I thought
a number of you did a good job of addressing it.
I was grateful that Congresswoman Craig mentioned the FEEDD
Act that she and I have been working together on to provide
USDA the flexibility to prompt them to move that November 1
chop, hay, graze date to September 1 during an emergency
situation. And it sounds as though we are going to have some
good news here sooner rather than later, maybe even today. That
is the kind of flexibility that really helps. When you have
widespread prevent plant environments, it is good to be able to
have that kind of flexibility.
Ms. Gerdes, I really liked in your testimony how you laid
out a number of tangible improvements to the crop insurance
system generally. What I would like you to do is put a little
more meat on that bone, particularly with regard to areas that
have widespread prevent plant. And it seems that maybe the
prevent plant system works less well when you have a systemic
need for that to work.
Any improvements come to mind? And as you talk about any
improvements, do we have the authority we need today under the
crop insurance system to get that done?
Ms. Gerdes. I will answer the last part of that first. I
think you do have the authority. I may be corrected on that,
but I believe the authority is there.
I was involved back in 1993 when prevent plant was put in,
in June, for 1993 payments, so my history with prevent plant is
very deep. I was very disappointed to see USDA listen to OIG on
prevent plant.
Any of the actuarial folks, Mr. Davenport, any company,
will tell you a 5 year window to develop policy is not
actuarially sound. I sat on the APH task force. They wanted us
to have at least 20 years of data to come up with a rating on
APHs. For a government to do that was tragic.
We would not be in the position we are today on prevent
plant had that not happened. Now, we can learn something,
though, because we don't want to incentivize farmers not to
plant.
The other thing that has happened, particularly in your
area, in my area, Iowa, all over, is when we put prevent plant
in, in 1993, there wasn't the extensive use of cover crops. And
we certainly never used it, but we use cover crops on a
significant number of our acres now for conservation issues.
I also grew up on a ranch in western Nebraska. I am a ranch
girl at heart. I understand when you have the kind of bomb
cyclones, you have weeks and months going on, there is no feed
available for some of these ranchers. And we need to do
something, and this cover crop is an opportunity where we can
develop something in the long-term.
I think you are on the right path, and I think it can be
done.
Mr. Johnson. Any other ideas? You talked about concerns you
had that they were listening to OIG, the 20 year data
collection. I mean, are there any other specific improvements
that we could make to the prevent plant universe generally?
Ms. Gerdes. There is one very important one. And you all
probably haven't heard about it yet, but trust me, in about a
month, you will, as these farmers start to file acreage
reports. If the entire farm is flooded, and you were signed up
for an enterprise unit, and you didn't get your 20 acres in two
separate sections on that crop planted, your premium just
doubled, or in many cases, particularly up in your area and in
my area where you have high-risk ground, I figured one the
other day, it is going to go from $26 an acre to $99 an acre.
I don't know whether the authority lies with RMA or the
authority lies with the Committee, but I would definitely, if
you are fully prevented from planting in a year like this, to
allow that farmer to have the enterprise unit discount, because
his intention was to plant it all.
Mr. Johnson. Well said. Thank you very much.
Mr. Chairman, I yield back.
The Chairman. Before we adjourn, I invite Ranking Member
Thompson to make any closing remarks that he may have.
Mr. Thompson. Well, Mr. Chairman, first of all, thank you.
Thank you for this hearing. It is the importance of it, the
timeliness of it.
Thanks to the staff on both sides of the aisle that work so
hard to help us to be able to do this.
And thanks to the members of the panel. Most all of you
traveled quite a distance to be here, and that is a sacrifice
and a service that serves well all farm families, and it is
appreciated.
Farmers have always faced risk in working so hard to feed,
clothe us, give us building materials, and energy. And we
should be proud of this Committee's work in the 115th Congress
in the 2018 Farm Bill on the risk management/commodities title.
With that said, our American farm families are counting on
us to do our very best regarding risk management that works for
all commodities. Farmers don't want a handout. They just want a
fair shot at managing what is truly probably one of the most
risk-filled industries that there are when you consider the
weather.
So, Mr. Chairman, thanks again. I yield back.
The Chairman. Thank you.
I too would like to thank Committee staff and all of our
Member staff for putting this really very important hearing
together, for our Members for their participation, and for our
witnesses coming from across the country.
The Ranking Member and I met about a month and a half ago.
And, having heard the concerns of our Members from the Midwest,
from Georgia and Florida, we really wanted to focus on the
severe weather events that producers in those regions
experienced. And you have done a really great job in informing
us about what has happened and giving us some guidance in terms
of what it is that we can do to move forward. Hopefully, we can
address with the Transportation Committee some of the Army
Corps issues. And so we will start working on that.
With that, under the Rules of the Committee, the record of
today's hearing will remain open for 10 calendar days to
receive additional material and supplementary written responses
from the witnesses to any question posed by a Member.
This hearing of the Subcommittee on General Farm
Commodities and Risk Management is now adjourned.
[Whereupon, at 11:46 a.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Submitted Statement by Hon. Filemon Vela, a Representative in Congress
from Texas; on Behalf of Ben Scholz, President, National Association of
Wheat Growers
Chairman Vela, Ranking Member Thompson and Committee Members, I am
Ben Scholz, a wheat farmer from Lavon, Texas and President of the
National Association of Wheat Growers (NAWG). NAWG represents wheat
growers across the nation and works with a team of 21 state wheat
grower organizations to advocate for the wheat industry. Thank you for
the opportunity to submit testimony on how farm policy can help farmers
in adverse conditions. Programs authorized in the 2018 Farm Bill, like
crop insurance and title [I] commodity programs, make it possible for
farmers to manage risk through challenging economic times.
First, let me start by sharing the tough conditions facing wheat
growers across the country and explain why these programs are needed.
Wheat farmers have seen several years of continuous low commodity
prices. The drop-in commodity prices have been much faster than the
change in cost of production. The expectation of continued low prices
has contributed to some of the lowest wheat acreage in U.S. history,
with only 39.61 million acres of harvested wheat expected in the 2018/
2019 marketing year, a drop from 47.32 million acres just 4 years prior
during the 2015/2016 marketing year.\1\ Additionally, with a wet fall
last year impacting winter wheat seedings and difficult weather
conditions impacting spring wheat seedings this year, we anticipate
there could be further reductions in production. The market year
average price for wheat continues to trend downward, having fallen to a
low price of just $3.89 per bushel in 2016. While the price has come up
to $5.15 per bushel in the 2018 marketing year, the average price over
a 10 year period is still trending down significantly.
---------------------------------------------------------------------------
\1\ Source: USDA, National Agricultural Statistics Service, Crop
Production, Agricultural Prices, and unpublished data; and USDA, World
Agricultural Outlook Board, World Agricultural Supply and Demand
Estimates.
---------------------------------------------------------------------------
Wheat Market Year Average Price
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
https://quickstats.nass.usda.gov/, *(P)= projected value by
USDA.
In addition to low commodity prices, U.S. wheat export markets are
in turmoil due to uncertainty and unfair trading practices. Countries
like China have support systems for their farmers that distort trade,
and uncertainty in current and new trade agreements especially with the
top two destinations for U.S. wheat, Mexico and Japan, have caused
strain on an already low-price wheat environment. U.S. farmers aren't
competing on a level playing field, with major wheat producing
countries like China violating WTO trade commitments in how they
support their farmers and not fulfilling their tariff-rate quota (TRQ)
commitments. We recently secured two big victories at the WTO on these
issues, and continued engagement will be necessary to ensure China
complies with the rulings. In addition, since last March there have
been almost zero sales of U.S. wheat to China due to the retaliatory
25% tariffs on wheat and wheat products.
More so, we have instability in two top markets for U.S. wheat as
trade agreements linger. The United States-Mexico-Canada Agreement
(USMCA) would enhance our already strong trading relationship with
Mexico and Canada while also maintaining duty-free access for U.S.
wheat that began with NAFTA. Uncertainty over the future of NAFTA and
now Congressional action on USMCA has meant that Mexico has looked to
other sources for wheat. The United States also faces uncertainty in
the Japanese market, another top export destination for U.S. wheat.
With the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP) moving forward without the U.S., top competitors
like Australia and Canada have a growing price advantage in the
Japanese market. We are pleased that the Administration has indicated
that negotiations with Japan is a priority; however, we absolutely need
an agreement as soon as possible that at least provides equal treatment
for U.S. wheat in Japan as our competitors in order to remain
competitive. A stable and predictable international marketplace is
critical to helping grow demand for U.S. wheat, especially given that
50% of wheat grown in the U.S. is exported. While the U.S. remains
focused on renegotiating current trade agreements and maintaining
current market access, the world, including our competitors, moves on
with new agreements creating new market access. The continued years of
low prices have placed significant stress on wheat farmers. Programs
authorized in the 2018 Farm Bill have and will continue to play a
critical role in helping farmers make it through the low-price
environments.
Of those tools authorized in the 2018 Farm Bill, none are more
important than the Federal Crop Insurance Program. Crop insurance is
purchased by farmers to protect against yield and revenue losses and
farmers actually receive a bill for their crop insurance policy. It is
true that farmers may pay into the crop insurance program for years
without ever receiving an indemnity payment. Currently the price for
wheat has risen dramatically because of the unusual wet weather pattern
being experienced this year, but that only helps those with production.
I wish to remind all of you; low yield or no yield, even in times of
higher price, still leave a farmer without profit. In those tough years
where there are large losses from revenue declines or crop disasters,
crop insurance is a critical tool to helping farmers.
Crop insurance is also a tremendous example of how public-private
partnerships can work. When there are losses, the losses are shared by
farmers, private-sector companies, and the government. Crop insurance
premium rates are set by the USDA's Risk Management Agency and private-
sector companies delivering the policies cannot refuse farmers a policy
if it is offered in that farmer's location. Unlike disaster payments,
the private-sector delivery of crop insurance allows for farmers to
receive indemnity payments quickly after they have met their deductible
on a loss. More so, by statute, crop insurance is actuarially sound.
The reliability and efficiency of the crop insurance program is one
of the reasons that many lenders require a farmer to have it in order
to qualify for loans, especially younger and beginning farmers who
often have less collateral and equity. Farmers having access to
affordable crop insurance allows farmers access to valuable loans and
credit which in turn helps not just a farmer but the entire rural
economy. In the case of an operating loan, a farmer uses the loan to
purchase seed and other inputs to grow their crop. In turn, the entire
rural economy benefits with farmers being able to pay for inputs and
farm equipment after a loss.
For the reasons above, wheat growers strongly support crop
insurance and oppose any efforts to undermine the crop insurance
system. Due to the program being actuarially sound, any policy
proposals that would increase the cost of crop insurance or kick
farmers out of the program could have negative impacts on all other
farmers in the program. Bringing on more cuts to the private-sector
delivery of crop insurance risks impacting the efficient delivery that
is one of the greatest benefits of the program. NAWG would encourage
the Committee Members and all Members of Congress to keep this in mind.
Beyond crop insurance, title [I] commodity programs also serve as a
useful safety net for farmers. For wheat growers, the Agricultural Risk
Coverage (ARC) and Price Loss Coverage (PLC) programs have helped
farmers through these low-price environments. Reauthorized in the 2018
Farm Bill, farmers are able to elect into the program that best fits
the needs of their operation and their risk management strategies. The
ARC program protects farmers against declines in revenue while the PLC
program protects farmers against price losses. These programs play an
integral role in helping farmers to manage their risk through prolonged
periods of low prices or production problems.
NAWG was pleased to see Congress strongly support both the Federal
crop insurance program as well as title [I] commodity programs in the
2018 Farm Bill. Farming is a risky business and farm policy like what
was reaffirmed in the 2018 Farm Bill helps farmers to manage that risk
and continue operating through a depressed farm economy and weather
challenges. Crop insurance and title [I] commodity programs are key
tools to helping U.S. farmers have some predictability and stability in
a very uncertain profession as well as helps are farmers to compete on
a level playing field in the global marketplace.
Wheat growers look forward to continuing to work with Congress to
ensure a strong farm safety net is maintained.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ben Scholz,
President,
NAWG.
______
Submitted Statement by Hon. Angie Craig, a Representative in Congress
from Minnesota; on Behalf of Crop Insurance and Reinsurance Bureau
Chairman Vela, Ranking Member Thompson, and distinguished Members
of the House Agriculture Committee, on behalf of the Crop Insurance and
Reinsurance Bureau (CIRB), thank you for the opportunity to provide a
statement for the record on crop insurance and the vital role it plays
in providing risk management to farmers across the country.
CIRB unites crop insurance companies, reinsurers and brokers to
provide a proactive voice for the industry in Washington, D.C. Its
mission is to preserve crop insurance as a critical component of the
farm safety net.
Over the years, and particularly since the adoption of the
Agriculture Risk Protection Act (ARPA) in 2000, crop insurance has
become a cornerstone of risk management for farmers and ranchers across
the country. Today, more than 1.1 million crop insurance policies are
sold to farmers each year by 15 private-sector crop insurance
companies.
Crop insurance companies, also known as Approved Insurance
Providers or AIPs, underwrite crop insurance policies, which means
these companies share in bearing the risk of crop insurance policies,
so the taxpayer is not entirely on the hook for losses. AIPs hire
agents to sell policies and adjusters to assess and confirm losses.
AIPs invest in technology, training and services to ensure the
integrity and efficiency of crop insurance. Companies also work closely
with RMA to implement policies such as conservation compliance.
AIPs, as well as the agents and adjusters that service crop
insurance policies, represent 20,000 jobs, primarily in rural America.
This private-sector delivery system allows the Risk Management Agency
(RMA) that oversees crop insurance at the U.S. Department of
Agriculture (USDA) to be one of the smallest USDA agencies with fewer
than 500 staff.
As an industry, we are proud to be an integral part of the rural
economy, but often the breadth and depth of coverage provided by crop
insurance is overlooked. Here are some significant facts about the
industry:
Almost 325 million acres were covered by crop insurance
during the 2018 crop year.
Individual crop insurance policies are available to more
than 125 commodities from apples to almonds and from cotton to
corn. Whole Farm revenue policies now make crop insurance
accessible to almost every single commodity and to even the
most diversified farms.
Crop insurance protected more than $110 billion in
liabilities during the 2018 crop year.
After proof of loss, indemnities of more than $6.7 billion
have been paid to date to farmers and ranchers for losses in
2018. During the devastating drought of 2012 more than $17
billion in indemnities were paid to keep rural economies from
collapsing.
Crop insurance is available in all 50 states and is
purchased by farmers in all 50 states.
Support for crop insurance unites a broad swath of rural interests,
including a crop insurance coalition that represents farmers, ranchers,
agents, lenders, ag input companies, conservation groups and crop
insurance companies. As CIRB, we stand united with these partners in
working to protect and preserve crop insurance that is affordable and
effective for producers of all sizes, crops and regions and is
delivered by the private-sector.
This year has been particularly trying for farmers and ranchers
across the country. Multi-year declines in farm income, low commodity
prices, trade uncertainty, and highly extreme and unusual weather have
all left farmers vulnerable. Crop insurance is the cornerstone of the
farm safety net, but it is not designed to provide protection in all
scenarios. For example, crop insurance covers losses in the field, but
does not cover liability when a commodity has been removed from the
field, as was experienced with the tragic flooded grain bins in the
Midwest.
Additionally, crop insurance is based on market prices and covers
revenue decreases caused by in-season price declines. However, the
program is not designed to cover the multi-year price declines that
farmers have faced for the last 5 years.
While these examples are outside of the jurisdiction of Federal
crop insurance, there are certainly improvements that can be made that
are within the scope of the program. We look forward to working with
this Subcommittee to identify areas where crop insurance can improve
within the purview of the program to provide the best risk management
possible to America's farmers and ranchers.
We would like to take this opportunity to point out that crop
insurance has faced numerous attacks in the past decade, often in the
form of draconian budget cuts. If these attacks are allowed to succeed,
improvements to the program simply could not occur or would be counter-
acted.
Challenges on the Horizon
Despite the overwhelming support for crop insurance among those
most familiar with the needs of farmers and ranchers, crop insurance
continues to be an ideological punching bag for some interests that
fail to recognize its value to the rural economy.
CIRB remains vigilant in defending the program from those who
wrongly believe that the nation's budget woes can be balanced on the
backs of rural America and who see farm programs, including crop
insurance, as a bank account to draw down at will. We have consistently
seen attacks that (1) pursue cuts to the private-sector delivery system
for crop insurance, (2) seek cuts to premium discounts for farmers, and
(3) demand means testing for crop insurance. We oppose each of these
proposals to harm crop insurance and urge the House Agriculture
Subcommittee on General Farm Commodities and Risk Management to stand
united with us in that opposition as challenges arise.
Private-Sector Delivery
We are proud to deliver crop insurance to America's farmers and
ranchers. CIRB views crop insurance as a successful public-private
partnership where the program is federally regulated, but delivered by
the private-sector. Federal regulation ensures that farmers cannot be
refused crop insurance protections and that individual companies cannot
raise premiums or impose special standards on any individual producers.
Premium rates are set by the government and are based on actuarial
soundness. Losses are shared by farmers, private-sector companies, and
the government.
Time and time again the private-sector has shown its value by
making it possible for farmers who have losses and have met their
deductible to typically receive indemnity payments in less than 30
days. Alternately, ad hoc forms of assistance often take more than a
year to provide financial help to farmers in need. It is this
efficiency that allows rural lenders to rely on crop insurance when
providing operating credit to farmers and ranchers.
Since 2008, the private-sector has absorbed cuts estimated at $12
billion over 10 years, including cuts in the 2008 Farm Bill and through
administrative actions taken in 2011 in the Standard Reinsurance
Agreement (SRA). Despite the positive track record of the private-
sector in delivering crop insurance to all 50 states, supporting 20,000
rural jobs and making previous contributions to deficit reduction,
various proposals have surfaced to make additional cuts to the private-
sector delivery system.
One such proposal aims to cut billions from private-sector delivery
by reducing the target rate of return for crop insurance companies from
14.5% to 8.9%. As is the case with many aspects of crop insurance,
there is an abundance of misinformation about what a target rate of
return is and what a cut would mean for crop insurance companies.
The target rate of return is not a floor on the rate of return for
companies, it is not a guaranteed rate of return, and it does not
equate to profit. Rates of return for companies fluctuate with the
market based on losses in any given year. In 2012 when the country was
devastated by drought and commodity prices were high, crop insurance
companies lost significant amounts of money. Last year, when losses
were lower, companies were able to recover many of the losses incurred
in years like 2012.
Just like with farming, there will be bad years and good years for
crop insurance companies. The good years are needed to recoup losses in
bad years with the hope that at the end of the day the business is able
to generate profit. Reducing the target rate of return would only make
it more difficult for companies to generate a profit and would
encourage companies to pull out of some markets where it would simply
not be financially viable to continue service. High risk areas and
small markets--two areas arguably most in need of the national safety
net--would likely be the first places to lose crop insurance providers,
thereby reducing competition in these markets.
We urge the House Agriculture Subcommittee on General Farm
Commodities and Risk Management to oppose misguided attempts to further
cut the private-sector delivery system for crop insurance.
Premium Discounts for Farmers
There have been numerous proposals to cut the discount that farmers
receive when purchasing crop insurance. The proposals vary in the
details, but are fundamentally flawed, regardless of how the cuts are
structured.
First, farmers receive a bill for their crop insurance coverage,
not a check. The premium discount simply reduces the size of that bill.
A farmer only receives a check for their crop insurance policy if they
have a verified loss above and beyond their deductible. The average
deductible is approximately 27%.
The indisputable fact is that a reduction in the premium discount
for crop insurance will increase the cost of crop insurance to every
farmer in every single state and for every single commodity. The
premium discount is what keeps crop insurance affordable for farmers.
Likewise, any increase in the cost of crop insurance will decrease
demand for the product. Economists can debate how much of a decrease in
demand will result from an increase in cost, but the fundamental fact
remains: if you increase the cost of crop insurance for farmers, they
will purchase less crop insurance. As commodity prices continue to
decline and farmers' budgets tighten, the impact of higher crop
insurance costs will only be more difficult for farmers to absorb.
As a reference point, recent analysis has shown that a ten
percentage point decrease in the premium discount would increase the
bill a typical Midwest grain farmer pays by 50% for a policy at the 70%
coverage level. On a policy with an 80% coverage level, the farmer's
bill would increase by over 30%.
The alternative to affordable and viable crop insurance is often ad
hoc disaster assistance that is 100% paid for by the taxpayer. This is
why an increase in premium discounts and types of coverage after
passage of the Agriculture Risk Protection Act in 2000 coincided with
an overall decrease in agricultural ad hoc disaster assistance.
We urge the House Agriculture Subcommittee on General Farm
Commodities and Risk Management to maintain the successes of the
Agriculture Risk Protection Act and to oppose cuts to farmer premium
discounts for crop insurance.
Means Testing
Adjusted gross income (AGI) limits and premium discount caps for
crop insurance have been discussed for a number of years. Some support
such proposals as politically expedient under the misguided belief that
they would simply eliminate government benefits for wealthy farmers who
``do not need support.'' However, the reality is much more complicated.
Federal crop insurance is, by statute, required to be actuarially
sound. Over the long-term, every dollar of indemnities (payments to
producers for losses above and beyond their deductible) must be equal
to the assigned premium. Crop insurance premiums, just as with other
forms of insurance, are based on the attributes of the risk pool, in
this case consisting of all of the acres of farmland enrolled in crop
insurance.
So, if AGI limits are applied and certain acres are removed from
the risk pool, the premium rates change for all farmers and the acres
that remain protected by crop insurance. It might be only a small
number of farmers who are directly impacted by an AGI limit, but it
would be a much larger number of acres impacted and would ultimately
impact every single producer in the program with a change in rates.
Studies have shown that larger farmers are less risky, so the premiums
for the smaller farmers left in the risk pool will increase.
Means testing via caps on premium support have been called ``ill-
advised'' by USDA, which has noted that regions with high-value crops,
large-scale farmers and/or regions with a higher risk of crop loss
would be especially hard hit. High-value crops would include things
such as fruits and vegetables and many organic crops. North Dakota,
South Dakota, Texas, Minnesota, California, Arizona, Mississippi, Utah
and Hawaii have all been singled out by USDA as likely to shoulder
disproportionate effects under a cap on premium assistance.
We urge the House Agriculture Subcommittee on General Farm
Commodities and Risk Management to oppose misguided attempts to place
means testing restrictions on crop insurance.
Conclusion
Thank you again for conducting this hearing to review the farm
safety net and for allowing CIRB the opportunity to provide a statement
about the critical importance of crop insurance to rural economies.
CIRB stands ready as a resource to this Subcommittee as improvements
are sought to the farm safety net.
______
Submitted Letter by Hon. Al Lawson, Jr., a Representative in Congress
from Florida; on Behalf of John L. Hoblick, President, Florida Farm
Bureau Federation
June 20, 2019
Hon. Filemon Vela,
Chairman,
Subcommittee on General Farm Commodities and Risk Management,
U.S. House Committee on Agriculture
Washington, D.C.;
Hon. Glenn Thompson,
Ranking Minority Member,
Subcommittee on General Farm Commodities and Risk Management
U.S. House Committee on Agriculture
Washington, D.C.
Chairman Vela and Ranking Member Thompson:
In Florida, adverse conditions define the agricultural landscape.
As resilient and innovative as our producers are, there are certain
challenges beyond control or predictability that merit the attention
and action of Federal policymakers.
For instance, our state's climate and geography exposes our
industry to heightened threats of invasive pests and diseases. The
onset and spread of citrus greening is a prime example, reducing our
state yields to \1/4\ of its production within a matter of years.
Hurricanes Irma and Michael caused a combined $4.1 billion in total
agricultural losses statewide in 2017 and 2018, respectively. Decades
of subsidized Mexican imports into Southeastern produce markets have
oppressed domestic producers and eroded market share. Unfortunately,
adverse conditions seem to be a permanent fixture in Sunshine State
agriculture.
Federal farm policy should serve as a foundation for proactive
strategies to address the myriad challenges that Florida producers
face. Indeed, there are crop insurance tools for specific commodities
and disaster aid programs for special circumstances; without these
programs, relevant producers lay vulnerable and unprotected. The
passage of the 2018 Farm Bill made great strides in making improvements
to these vital programs.
However, as an organization representative of our state's 300
various commodities, it proves challenging to apply the Federal
Government's ``one-size-fits-all'' predisposition to each grower's
unique situation. There is no better example than the 2017 Wildfires
and Hurricane Indemnity Program (WHIP). Effective implementation of
2018 and 2019 WHIP should be appropriately monitored by this
Subcommittee.
As the leadership of the General Farm Commodities and Risk
Management Subcommittee of the U.S. House Committee on Agriculture, I
encourage the Committee's active engagement on preserving and enhancing
policy and programs that helps our farmers through tough conditions,
while also exploring innovative solutions to improve timeliness,
responsiveness, and efficiency to these existential problems for
Florida growers.
On behalf of our 147,000 member-families, we value the charge of
this Committee and appreciate its serious work to ensure farm policy
meets the needs of producers as they grapple with these unprecedented,
numerous challenges.
Kind Regards,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
John L. Hoblick,
President.
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