The National Corn Growers Association says its Revenue Counter-Cyclical Program proposal would provide farmers with safety net protection when they actually need it at a cost of only $500 million above the Congressional Budget Office baseline.
The latest edition of the NCGA’s proposal for revamping the farm bill was delivered at a March 28 hearing of the House Agriculture Subcommittee on General Farm Commodities and Risk Management. The subcommittee, chaired by Rep. Bob Etheridge, D-N.C., is expected to write the commodity title of the 2007 farm bill.
“Most producers agree that the commodity support programs in the 2002 farm bill have served them well,” said Ken McCauley, NCGA president and a farmer from White Cloud, Kan. “Extending these programs, though, would do nothing to address the flaws NCGA has noted since the summer of 2002 or the solutions we have recommended.
“Too many farmers have learned the hard way that today’s farm supports may be effective when the price is low, but the income protection available when yields are low has proven to be less than adequate.”
Briefing reporters on the proposal before the hearing, McCauley acknowledged higher prices would seem to make the safety net less of an issue for corn growers. USDA’s latest forecast for 2007 has farmers planting 90.5 million acres of corn — an increase of 12.2 million from last year — to meet the rising demand for ethanol.
The renewable fuels phenomenon has created a “whole new plateau for corn prices,” he said. “But we all know the next problem for our farmers could be just around the corner.”
Problems with drought and low yields in some parts of the Corn Belt led the National Corn Growers Association to begin taking a critical look at the current farm bill not long after President Bush signed it on May 13, 2002.
Producers have found that higher corn and wheat prices resulting from crop shortfalls precluded the 2002 farm bill’s counter-cyclical payments for the grains and farmers could not receive loan deficiency payments for corn and wheat they didn’t grow.
“Although projections of higher commodity prices, alone, present a strong case for a revenue-based farm program, it is producers’ experiences with drought and other adverse weather conditions in isolated areas that have drawn our attention to what some economists have referred to as a hole in the safety net,” McCauley said at the hearing.
“Under these circumstances, growers have been unable to fully benefit from higher market prices and cannot depend on counter-cyclical payments at a fixed target price to reduce the adverse impact of lost income.”
Higher corn prices in recent years have meant USDA has not made counter-cyclical payments for corn, soybeans and wheat for most of the life the current farm bill. Cotton producers, on the other hand, could receive an average of $74.22 per acre in CCP payments for 2006-07, according to the Food and Agricultural Policy Research Institute.
McCauley said the National Corn Growers’ Public Policy Action Team spent two years developing the Revenue Counter-Cyclical Program, drawing on state corn grower associations and Iowa State and other universities for analysis of the program’s features.
The RCCP, which is the basic premise of the NCGA’s National Farm Security Act, would make changes that would help ensure better protection against volatile commodity prices and significant crop losses and would provide permanent disaster assistance.
The RCCP has already undergone one major alteration, the removal of the base revenue protection feature contained in the initial Corn Growers’ submission to its state organizations last summer and fall.
Under BRP, payments would have been triggered when net farm corn revenue fell more than 30 percent below the previous five-year Olympic average of per-acre net corn revenue on the farm. Per acre net revenue would have been based on farm yields, a national price and regional variable cost estimates.
The program was designed to allow the United States to report BRP payments to the World Trade Organization as “Green Box” support.
Critics said BRP, which, when combined with the Revenue Counter-Cyclical Program, could have cost 43 percent more than the current policy, might not have passed muster for placement in the WTO’s Green Box.
The NCGA’s latest proposal does not mention Base Revenue Protection. Instead, it focuses on replacing the existing counter-cyclical program, loan deficiency payments and the non-recourse marketing loan program with more comprehensive and cost-effective risk management tools.
Those would include a combination of Revenue Counter-Cyclical Program payments and federal crop insurance. Direct payments, meanwhile, would continue to provide a foundation of support.
“Rather than target low prices, the RCCP would make payments when a county’s realized crop revenue is less than a crop’s trigger revenue,” said McCauley. “When the actual per-acre revenue falls below the per-acre trigger revenue, producers would be compensated for the difference.
“I need to emphasize that a farm’s total payment would equal the per-acre payment multiplied by planted acres rather than base acres as is the case with today’s price-triggered program.”
The county-based program is similar to Group Risk Income Protection, a product developed by Iowa State University that is currently offered through the federal crop insurance program. Similar to GRIP, the proposed RCCP trigger revenue for a county would equal the product of RCCP coverage level, the expected county yield and the projected price level.
The harvest price and a crop’s actual county yield reported by USDA’s National Agricultural Statistics Service would determine the actual county revenue. But RCCP would not include a Harvest Revenue Option, which can increase payments if the harvest price is greater than the projected price.
In an example provided by the Corn Growers, a county with a 145-bushel per acre corn yield and a February insurance price of $2.83 per bushel would have expected county revenue of $410 per acre. An actual county yield of 158 bushels per acre and a season average price of $2.05 per bushel would equal realized county revenue of $325 per acre.
Subtracting the $325 per acre from the 95-percent trigger level envisioned by the Corn Growers for the RCCP — $389.50 per acre in this example — would provide a Revenue Counter-Cyclical Payment of $64.50 per acre.
“In most years, RCCP payments would be triggered by the same events that lead to the great majority of crop insurance indemnity payments: droughts, excessive or inadequate heat, excessive rain or widespread disease-related losses,” said McCauley. “Hail, wind damage or local flooding may also cause losses at the farm level, but not enough toward county losses to trigger RCCP payments.”
He said the Corn Growers recognize the potential for overlapping coverage with RCCP and crop insurance. “Consequently, NCGA proposes to integrate RCCP payments with the federal crop insurance program to create a more effective and cost efficient farm safety net.”
Corn Grower leaders believe that by providing a first line of revenue protection and reducing the price risk and production risk now borne by private insurance companies, the latter could provide individual revenue insurance at higher coverage levels.
Farmer-paid premiums of buy-up revenue insurance policies, which appear to be much more widely used in the Midwest than the Sun Belt, would drop significantly through the re-rating of insurance products by the Risk Management Agency, according to analysis provide to the NCGA.
The Corn Growers’ RCCP proposal adopts and alternative approach that offers the advantage of providing savings for farmers wanting to purchase crop insurance while reducing the financial risks of the private insurance industry, says McCauley.
“We believe this change offers the potential of further strengthening the private-public partnership by making sure that most private insurance companies survive even through the heavy loss years,” he notes. “Another advantage to this direct approach is that it would provide a standing disaster program for farmers who grow program crops.
“Unlike the uncertainty and protracted delays that are now the norm for agriculture disaster assistance, RCCP would automatically provide payments to all farmers in counties that suffer low revenue.”
A county-based RCCP modeled after the Group Risk Income Protection insurance policy would provide permanent disaster assistance less costly than the ad hoc disaster aid programs that have averaged near $1.8 billion on an annual basis, says McCauley.
“Assuming a level of 75 percent buy-up individual revenue insurance, a county revenue guarantee at a coverage level of 95 percent of the projected price and a two-year implementation delay of a five-year farm bill, the annual cost of the NFSA is projected at about $500 million above baseline.”