NCC Says Crop Insurance Important Risk Management Tool

The NCC urged a House panel to continue its risk management oversight, including the federal crop insurance program, to ensure a meaningful tool is available for producers.

April 22, 2009
Contact: Marjory Walker
(901) 274-9030

WASHINGTON – The National Cotton Council urged a House subcommittee to continue its oversight of risk management, including the federal crop insurance program, to ensure a meaningful tool is available for producers.

In testimony here today before the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management, Rickey Bearden, chairman of the NCC’s Crop Insurance Task Force, said, “crop insurance must be developed, delivered and administered as an effective risk management tool and innovative policies must be developed to make crop insurance more useful in various and ever-changing production conditions.” He pledged that the NCC will work with the Subcommittee and with the Risk Management Agency to accomplish our common goal of providing cotton producers with effective risk management options at affordable rates.

The West Texas cotton, grain and peanut producer told the panel that “improving the risk management options for producers has been a top priority for the cotton industry for many years.” He testified that he had been farming for 34 years and considered insurance coverage an important risk management tool as important “as any other production input” as West Texas producers are particularly vulnerable to Mother Nature.

Bearden said that cotton insurance coverage at higher levels is still not as affordable as the higher coverage levels for other commodities -- with the majority of cotton polices affordable only at the lower end of the coverage spectrum at around the 60-65 percent levels.

“It is critical that the Risk Management Agency establish a comprehensive strategy to identify why inconsistencies continue to exist across crops and establish a strategic plan for addressing these issues,” he stated. “RMA must find a way to make higher levels of coverage affordable to more producers.”

Bearden, while acknowledging the RMA cotton program has improved, offered some recommendations for administering the crop insurance program. Among them were:

Place additional focus on the refinement of policy options that allow regional differences in insurance to be recognized;

Use rate setting procedures that recognize growers’ investments in reducing their individual risk such as planting improved varieties and employing good soil and water conservation practices – and reward reduced risk/improved productivity with lower rates;

Consider allowing a producer to purchase different coverage levels for irrigated and non-irrigated production; and

Structure the cotton quality loss provisions in recognition of unique bale identity.

Bearden noted that a new quality adjustment provision for cotton, based on the Commodity Credit Corporation Loan Premium and Discount schedule, has been developed by the RMA with recommendations from the NCC.

“We have made some progress with RMA on implementing this provision and encourage the Agency to complete this process as quickly as possible to make the new procedure effective for the 2010 growing season,” he said. “We also believe that this revised quality adjustment procedure should continue to be considered part of the basic premium and implemented at no additional cost.”

Bearden said the NCC is supportive of conducting a 2010 growing season Cottonseed Pilot Endorsement (CPE) – a program which would offer yield coverage for cottonseed as an optional endorsement applicable to buy-up cotton insurance policies.

He said the NCC also is encouraging USDA to act quickly to publish a Proposed Rule for the Supplemental Revenue Assistance Program and to provide adequate time for review and comment by commodity groups and Committee members. The NCC believes this permanent disaster assistance program created under the 2008 farm law to address widespread natural disasters should not penalize a grower for the increased investment made when purchasing a higher, more expensive level of crop insurance protection.

The Texas producer testified that the RMA also should review their policies to determine how best to assist producers following large scale disasters. As an example, he cited the long delay following the 2008 hurricanes that affected farmers in Louisiana, Mississippi and Texas.

Bearden also stated that great care must be exercised during the negotiations of the Standard Reinsurance Agreement to “maintain a reasonable balance between public and private interests. We must, at all costs, guard against forcing changes on approved insurance providers that would ultimately result in an unintended undermining of service to producers.”