The crop revenue insurance program seen as vital to farmers will likely be a source of intense wrangling in the next farm bill debate, according to speakers at this year’s annual fall crop insurance workshop hosted jointly by Kansas State University, Oklahoma State University, the University of Nebraska and Colorado State University.
The workshop, which attracts farmers and lenders as well as crop insurance agents and adjusters, was held in Salina, Kansas, Enid, Oklahoma, and at sites in Colorado and Nebraska.
“There’s a bull’s-eye on us now because our budget is greater than the commodity title or the conservation title,” said Stephen Frerichs, a government relations specialist in Washington D.C. who represents the country’s largest crop insurance provider, Rain and Hail Insurance.
The last time Congress debated a farm bill, political infighting nearly did it in. Oklahoma’s Frank Lucas, who chaired the House Ag Committee at the time, described it as taking two-and-a-half years to do what should have taken six months. Many consider it a miracle he was able to steer the bill to completion at all.
The bill had to be split apart into two separate pieces — one addressing production agriculture and the other focused solely on nutrition programs — and then knitted back together in the conference committee to get the $956 billion measure passed.
“This fight is going to get tougher and tougher as we go along,” said Kirby Smith, a field representative for the Congressman based in Yukon.
Payments from the traditional commodity support program, which includes two options, price loss coverage or ag risk coverage, have declined significantly relative to revenue insurance coverage. Commodity programs now account for only $44.5 billion of the bill’s five-year budget, while crop insurance represents $89.9 billion. Fully 80 percent of total spending goes toward food and nutrition assistance programs.
With extreme variation in net farm income from year to year, farmers are dependent on insurance protection for long-term viability but also to get financing, according to Art Barnaby, a long-time ag policy specialist at K-State.
Lenders have told him they are worried many farmers would not be able to collateralize loans without it under increasingly strict auditing standards.
Ag leaders in Congress, namely Rep. Mike Conaway of Texas and Sen. Pat Roberts of Kansas, have said they intend to get the farm bill finished on time. However, Frerichs and Barnaby both said that might be difficult to do, pointing to a strong “left-right coalition” opposed to farm spending and more than 100 new legislators who will be voting on a farm bill for the first time.
In fact, Barnaby said he would not be surprised if the current bill, scheduled to expire next fall, gets extended for another year.
Barnaby said the insurance program is sound policy, pointing out it requires farmers pay a significant portion of the premium and has been coming in under budget for years.
In some years farmers do get back more than they put in, he said, but in other years —2006 and 2012 are examples — they receive as little as 14 to 20 cents of every $1 they invest.
“That’s not a good way to capture a subsidy,” he said. “Farmers look at it as a cost of a doing business.”
Since 2014, participation has also been tied to conservation compliance. That provision wasn’t popular with farmers but was used to ward off something they consider worse: means testing.
Calls for means testing based on a farm’s adjusted gross income will likely return during the next debate, Barnaby predicted.
He has long argued forcing the biggest farms out of the program would narrow the risk pool, drive up loss rates and increase premiums for the remaining farms, regardless of size.
“They are going to get some surprises if they ever decide to go through with that,” he said.
He also believes the move would incentivize farms to create more entities, which would lead to a heavier workload at U.S. Department of Agriculture offices without accomplishing much.
Frerichs noted Ron Kind, the Congressman from Wisconsin who introduced the means testing amendment last time, has already made preparations to file something similar.
“An AGI test would knock a lot of growers out of this program,” Frerichs said.
When the last farm bill was being crafted, few could have predicted how sharply commodity prices would drop. Now, with markets in the doldrums, support programs have shown their true colors.
Farmers who signed up for the current bill had the choice to enroll in either LPC or ARC. ARC was created to satisfy the corn lobby, while LPC was believed better suited for wheat and dryland crops.
Splitting support payments into two options left farmers and agricultural economists scrambling to calculate how payments would compare under the two scenarios, a far-from-ideal process that could happen again with the next sign-up, Barnaby said.
“The Congressional Budget Office thinks more farmers will move into PLC,” Frerichs added. “Will we have a better transition process this time? I’m hoping that we will, now that farmers are more familiar with the two programs.”
The ARC option needs serious retooling, due to what Frerichs described as “data problems” and “inequity issues.” Yield data used to calculate ARC payments has been questioned in a number of counties.
No payments were ever triggered across the entire southern tier of Iowa, a state that holds sway in national politics, he said.
“What would really help ARC is if they put the county yield out there as soon as possible so farmers would have from April until October knowing what their payment size was likely to be and that would be useful to take to the banker,” Barnaby added.
Many observers predict the new farm bill will be tweaked rather than overhauled. But there are a couple of areas that demand improvement, the experts said.
Cotton policy “has just not worked for the cotton industry,” Frerichs said.
“The industry has spent the past year trying to get cotton back into the commodity program again so those farmers can be eligible for ARC or PLC,” he added.
Putting cotton back into the commodity program would require updating the acreage base used to compute payments, Barnaby noted. “There may be a forced updated base that would happen, but I don’t think it will be voluntary,” he said.
Dairy’s margin protection program, or MPP, has also been a bust, the experts said, forcing many small dairies to exit the business. Efforts are underway to find a fix, Frerichs said.
He also predicted the cap on the Conservation Reserve Program, currently set at 24 million acres, will be raised under the new bill. £