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Crop Insurance
In an update posted today at The Des Moines Register webpage, Philip Brasher reported that, “The growing profits that crop insurance companies are making from selling their federally subsidized policies is catching the eye of Congress…Profits from crop insurance are three times as high as the rate of turn that insurance companies normally get from property and casualty insurance, government investigators told the House Oversight and Government Reform Committee.”
I. Crop Insurance
II. Farm Bill
I. Crop Insurance
In an update posted today at The Des Moines Register webpage, Philip Brasher reported that, “The growing profits that crop insurance companies are making from selling their federally subsidized policies is catching the eye of Congress.
“Profits from crop insurance are three times as high as the rate of turn that insurance companies normally get from property and casualty insurance, government investigators told the House Oversight and Government Reform Committee.” [Committee press release available here; Chairman Waxman's opening statement; witness list and opening statements.]
Mr. Brasher added that, “Forty cents of every dollar the government pays for the program goes to insurance companies, not farmers, said Lisa Shames, an official with the Government Accountability Office [GAO], the investigative arm of Congress [one page GAO summary; full statement via GAO].
“The chairman of the House committee, Rep. Henry Waxman, D-Calif., called the program a ‘textbook example of waste, fraud and abuse in federal spending.’”
In conclusion, the Des Moines Register update indicated that, “Representatives of the crop insurance industry told a House Agriculture subcommittee earlier this week that it’s unfair to consider underwriting gains as profit, because companies need to save some of those earnings for years when indemnities exceed the premiums.
“Bruce Babcock, an agricultural economist at Iowa State University, told the oversight committee that the government could save money and make much of the insurance unnecessary by overhauling the way crop subsidies are paid.”
Recall that the Washington Post “Harvesting Cash” series reported on issues associated with federal crop insurance:
* “‘Farming Your Insurance.’” By Gilbert M. Gaul. October 15, 2006.
* “Too Big for Disaster Aid, Farmer Chooses to Divide and Conquer.” By Gilbert M. Gaul. October 15, 2006.
* “Most Farmers Skipping Subsidized Loans and Going for the Cash.” By Gilbert M. Gaul and Sarah Cohen. October 15, 2006.
II. Farm Bill
Barbara Hagenbaugh reported recently at the USA Today webpage that, “Farmers in some of the most unlikely places are planting corn this year as demand for the grain to make ethanol has led to skyrocketing prices, sparking a corn rush throughout the USA.
“U.S. farmers are expected to plant the largest corn crop since World War II this year, switching acreage from soybeans, cotton, rice and other crops and planting on land that has been sitting idle for years. The move is in response to soaring demand for ethanol, commonly produced from corn in the USA.”
The article indicated that, “There are other concerns. If growing conditions are good this year, there could be so much corn that prices could fall considerably, making it harder for farmers to turn a profit. Plus, if oil prices were to drop substantially, the ethanol boom could fizzle, leading to a drop in corn prices. For many farmers, growing corn costs more than the crops they’re replacing, such as soybeans, increasing overhead. They need prices to stay high.
“‘It is a bit of a gamble,’ says Chad Hart, agricultural economist at the Center for Agricultural and Rural Development at Iowa State University in Ames. But, ‘our demand for gasoline is continuing to grow,’ he says. ‘And as long as corn-based ethanol is a viable alternative or can help feed into that market, that demand is likely to stay. That means there will be demand for that corn to make that fuel.’
“Says Larry Salathe, senior economist at the USDA: ‘I don’t think we’re going to be concerned about too much corn. I think the risks are on the other side.’”
Later, the USA Today item pointed out that, “Farmers are responding to a surge in the price of corn. Corn prices on futures markets peaked at $4.35 a bushel in mid-February, nearly twice the price seen a year earlier. Even though prices have come down since the USDA announced farmers’ planting intentions in late March, the prices were still up 50% from a year ago at $3.58 a bushel at the end of April.
“Although some farmers are lamenting the recent price drop, ‘Two years ago, if you would have said $3 corn, people would have celebrated,’ says Michael Swanson, agricultural economist at Wells Fargo in Minneapolis.
“Higher corn prices have led to higher prices for other grains, such as soybeans, because greater corn production is at the expense of soybean supplies. For consumers, the increase in corn prices could lead to higher costs for such items as meat, bread and soft drinks flavored with corn syrup.”
In a related item, USA Today’s Ms. Hagenbaugh reported that, “Total government payments to farmers were cut in half for all crops grown last year as aid to corn growers plunged to the lowest in a decade.
“But, because of the way farm aid laws are written, farmers who are switching from growing cotton to corn will likely continue to receive government aid to compensate for low cotton prices.
The article explained that, “Corn growers received $2.1 billion in government payments for the 2006 crop, down from $9.6 billion for the 2005 crop and the smallest amount of aid since 1996, according to the U.S. Department of Agriculture. Government farm aid has fallen because payments in two of the three farm aid programs [counter-cyclical payments and loan deficiency payments] fall when crop prices rise.”
And later, Ms. Hagenbaugh stated that, “For two of the three support programs, payments are based on what farmers grew several years ago, not on what they grow this year or next [counter-cyclical payments and direct payments]. Growers can switch to just about any crop, but their payments will be based on what they usually grow, not what they are growing that year.
“If growers who traditionally raise cotton switch to corn, they will continue to receive some government cotton payments. That means they are likely to continue to receive farm aid under two of the cotton programs, even if they don’t plant a single cotton seed and corn is fetching high prices.
“American Farm Bureau Federation senior economist Terry Francl estimates producers who traditionally grow cotton will receive $94 per acre from the government for the 2007 crop, vs. $22 per acre for corn growers.”
As the USA Today articles imply, generally higher market prices for some program crops have resulted in lower federal outlays, as well as lower projected outlays in the federal budget baseline for agricultural spending. This reality, along with recently implemented pay-as-you-go spending measures by the House and Senate, have complicated the task of drafting a Farm Bill this year.
The “Washington Insider” section of DTN picked up on the budgetary issue in an update from today (link requires subscription).
The DTN item noted that, “The inner workings of the Congressional budget system mean that the spending limits for the 2007 farm bill will be hammered out as part of the annual resolution for the FY2008 budget. But that process is proving very difficult, and is taking more time than some expected. It is also confusing to follow because it is entirely separate from the battle over the supplemental appropriations bill to add funds to the FY2007 budget to support the war in Iraq.
“Both the House and the Senate have passed draft FY08 budget resolutions, and both include large reserve funds — $15 billion in the Senate bill and $20 billion in the House. The uncertainty comes from the fact that use of those reserves would have to be offset by budget cuts elsewhere and/or tax increases — unless Congress votes to waive its current Pay-as-You-Go rules.
“The Congressional leadership is attempting to expedite the budget process, but is running into some tough issues. House Majority Leader Steny Hoyer, D., Maryland has indicated that if the Budget conference committee does not agree on a resolution soon, the leadership likely will impose the spending cap in the House-passed resolution, rather than delay action on the annual spending bills. The leadership told the press earlier this week that they hope to announce conference committee members later this week, indicating that an agreement on a budget cap is near.”
After more detailed analysis, “Washington Insider” stated that, “So, while Congressional hearings on farm bill issues are continuing, the budget fight on non-farm bill concerns is the struggle being watched most closely. Only after at least some of the main budget concerns are resolved can the agriculture subcommittees begin to wrestle with legislative language to reauthorize the farm bill — a process likely to begin in earnest later this month, Washington Insider believes.”
In an item posted after this morning’s “Washington Insider” was published, Congressional Quarterly reported this afternoon that, “House and Senate negotiators have made enough progress toward a joint budget resolution that they plan to formally meet next week in hopes of reaching a final agreement in time for appropriations bills to start moving on the House floor the week of May 14.
“The House will appoint conferees May 7 on the fiscal 2008 budget resolution. Senate Budget Chairman Kent Conrad, D-N.D., said the Senate would soon follow, clearing the way for a formal conference meeting.
“The House Rules Committee was expected today to approve a rule for consideration of the Senate budget resolution (S Con Res 21). This step is being taken to overcome potential parliamentary problems and objections to heading to conference by unanimous consent. The House rule will clear the way for House conferees to be appointed.”
Meanwhile, as the budget process continues to move forward, a news release issued today by U.S. Representative Rosa L. DeLauro (D-Connecticut) stated that, “With Congress set to craft a farm bill later this year, Congresswoman Rosa L. DeLauro (Conn.-3), chairman of the House Agriculture Appropriations Subcommittee, unveiled comprehensive legislation – the Farm, Nutrition, and Community Investment Act – aimed at ensuring the needs of the Northeast and Mid-Atlantic regions are prioritized during the upcoming debate. The legislation focuses on the unique economic and environmental challenges facing the Northeast and Mid-Atlantic regions, and helps provide adequate food assistance and healthy food choices. Joining DeLauro in introducing the bipartisan legislation is Congressman Wayne Gilchrest (MD-1).
“‘Congress will be crafting a farm bill this year and we have a real opportunity to influence the debate to the benefit of farmers in the Northeast and Mid-Atlantic regions. For far too long these regions have been under represented in the Farm Bill, even though agriculture in the regions contribute $15 billion to the economy,’ stated DeLauro. ‘That is why I am introducing this legislation – a bill that outlines the important issues to these regions, such as nutrition, conservation, and specialty crops – and ensures they are given the weight they deserve in the upcoming farm bill debate.’
“‘This is consensus legislation – a comprehensive approach. Not everyone may agree with all of its provisions, but we worked on this for many months in a bipartisan way and have succeeded in bringing sometimes divergent opinions together around the common interests.’”
The news release indicated that, “Current farm bill programs favor farms of a type and scale not found in the region, leaving an overwhelming majority of Northeast/Mid-Atlantic farmers ineligible for federal subsidies. Compared to some states, where commodity payments top fifteen cents for every dollar in farm sales, the Northeast/Mid-Atlantic region receives less than two cents per dollar of sales. This problem is not unique to the region. Many other states’ needs are not being met—areas with diversified agriculture, rapid development, significant urban areas, and increasing environmental pressure.”
American Farmland Trust (AFT) issued a news release today regarding this legislation. AFT noted that, “Citing the need for improved farm profitability, agricultural innovation, rural prosperity and adequate healthy diets for all people, Representatives Rosa DeLauro (D-CT) and Wayne Gilchrest (R-MD) introduced the Farm, Nutrition, and Community Investment Act today.
“‘American Farmland Trust (AFT) applauds Representatives DeLauro and Gilchrest for taking the bold leadership to chart a new direction in U.S. agriculture policy,’ says AFT President Ralph Grossi. ‘The Farm, Nutrition, and Community Investment Act is a major new contribution to the 2007 Farm Bill debate, by addressing the deficiencies in today’s farm and food policy in a comprehensive way.’”
The AFT item also indicated that, “Over the past three years, AFT has learned from farmers and ranchers how many unmet needs there are in U.S. agriculture. ‘Our nation’s farmers are turned away from participating in conservation programs, and the majority receive no program support for their crops and livestock. We have an inadequate safety net in place that results in the need for repeated supplemental disaster assistance. Each year there is less farmland and fewer farmers, and, worse, in this land of plenty, too many people who go hungry,’ said Grossi.”
AFT also provided helpful links regarding the legislation, including an overview of the bill, the main elements of the bill, and a section-by-section overview of the bill.
A separate news release issued today on this issue stated that, “Three leading environmental groups [National Audubon Society, Environmental Defense and the Environmental Working Group] praised the introduction today of a bill that proposes to dramatically increase funding for voluntary conservation programs in this year’s Farm Bill.”
The release added that, “With other significant farm bill reform legislation, such as the Healthy Farms, Foods and Fuels Act and the EAT Healthy America Act already cosponsored by more than 178 House members, this bill further strengthens the call for Congress to expand conservation in the next Farm Bill.
“The bill would:
* Double incentives for better water quality to $2 billion a year;
* Provide farmers $300 million a year to enhance wildlife habitat;
* Help farmers restore 5 million acres of wetlands;
* Increase funding to help protect forest lands from development;
* Promote development of renewable energy sources.”
***
In other Farm Bill news, the Sustainable Agriculture Coalition today issued a news release, which stated that, “The Sustainable Agriculture Coalition commends Congressman Leonard Boswell (D-IA) and co-sponsors Representatives Barbara Cubin (R-WY), Marcy Kaptur (D-OH), Bruce Braley (D-IA), and Dave Loebask (D-IA) for introducing the Competitive and Fair Agricultural Markets Act (H.R. 2135) today. The Coalition supports this bill, a companion bill to the Senate version – S.622, as an important measure in a package of legislation that will make up a comprehensive Competition Title for the next Farm Bill.
“‘U.S. agricultural markets are becoming far too concentrated,’ said Martha Noble, senior policy analyst with the Coalition. ‘Many farmers and ranchers must deal with mega-processing firms that offer take-it-or-leave-it, non-negotiable production contracts. This is especially true in the livestock and poultry sector. In many regions there are only a few buyers, or even just one buyer, for livestock or poultry. The Competitive and Fair Agricultural Markets Act will help level the playing field for farmers and ranchers in their relations with these mega-firms.’
“The Competitive and Fair Agricultural Markets Act would correct serious deficiencies in USDA’s authority to protect farmers and ranchers from unfair practices in agricultural marketing. It would increase protection of poultry growers from violations of the Packers and Stockyards Act by authorizing USDA to bring administrative enforcement actions. It would also amend the PSA by removing court-fashioned barriers that require livestock and poultry producers to prove sweeping effects on competition of unfair and deceptive practices that have harmed them individually.”
-Keith Good
