TESTIMONY OF

PHILLIP CYRE

ON BEHALF OF THE

NATIONAL FARMERS UNION

REGARDING

IMPROVEMENTS TO THE FEDERAL

CROP INSURANCE PROGRAMS

PRESENTED TO THE

SENATE AGRICULTURE, NUTRITION AND

FORESTRY COMMITTEE

WASHINGTON, D. C.

MARCH 17, 1999

STATEMENT OF PHILLIP CYRE, ON BEHALF OF THE NATIONAL FARMERS UNIION, PRESENTED TO THE SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE, MARCH 17, 1999

Mr. Chairman, Members of the Senate Agriculture Committee, thank you for holding this important hearing to discuss ways to improve the federal crop insurance programs. It is an honor to have this opportunity to appear before you. I am Phil Cyre, a farmer from South Dakota, where I operate a 3,000 acre diversified farm. I serve as vice president of the South Dakota Farmers Union, and today, I am testifying on behalf of the 300,000 members of the National Farmers Union. In order to expedite your opportunity to hear from all the witnesses gathered here today, I will summarize the testimony that has been provided the Committee.

The National Farmers Union supports the effort to enhance the availability, coverage levels and affordability of the various federal crop insurance program options. We caution the Committee however, that crop insurance by itself, however improved or reformed, is unlikely to provide a complete risk management program for farmers and ranchers. In addition, I would like to emphasize that crop insurance is not a substitute for other programs and policies that would comprise an effective and viable economic safety net for agricultural producers. It is one component, albeit an important one, of a broader package that is required to enhance the economic sustainability of America's family farms.

Concerning specific improvements to the crop insurance program, the National Farmers Union supports program modifications and funding to accomplish the following points:

1. Encouraging increased participation at higher levels of multi-peril coverage through:

v Application of inverted subsidies for all federal crop insurance coverage, including revenue products, above the 65 per cent coverage level.

v Development of multi-year coverage options.

v Expansion of crop insurance yield guarantee levels to provide additional coverage options above 75 per cent of actual production history (APH).

In order to reduce the likelihood of future ad hoc production loss disaster programs, it is imperative that participation in crop insurance be expanded, and that affordable coverage be provided that more fully restores the economic losses sustained by producers who suffer production and/or revenue shortfalls.

We realize increased participation requires a greater federal funding commitment to the crop insurance program. However, the advantages of spreading the program risks among an enlarged pool of insureds should improve the actuarial soundness of the program and provide greater economic stability to the production sector.

Inverting the subsidies for all types of buy-up coverage should stimulate interest in participation among those who currently do not purchase crop insurance. In addition, providing a higher level of premium subsidy for policies that provide greater coverage levels will encourage more producers to purchase policies that provide increased protection in the event of a loss, reducing the pressure for supplemental disaster assistance.

We believe the development of multi-year coverage options will provide an additional incentive for program participation among farmers who desire greater stability in both yield and revenue coverage over time. Had multi-year coverage been available during the 1990's, many of the concerns over declining coverage levels associated with extended weather related losses could have been mitigated.

A critical need of the federal crop insurance program is enhancement of the yield guarantees available under existing programs. The historically narrow profit margins that characterize agricultural production discourage many producers from utilizing crop insurance due to the high levels of loss that must be sustained and absorbed by the producer before coverage applies. Providing optional yield guarantee levels above the current 75 per cent of actual production history (APH) will allow producers the opportunity to more closely tailor their crop insurance coverage to their economic risk management requirements.

2. Providing enhanced income protection through:

v Creation of new products that allow producers to protect their income during periods of low prices.

v Development of federal crop insurance policies to provide a "dollar per acre"

multi-peril coverage option similar to private policies that currently exist for single-peril coverage.

v Implementation of improved quality loss provisions that reflect true, local market discounts and adjustments.

v Expansion of crop loss and revenue protection programs to cover a broader range of agricultural production including additional crop policies improved forage coverage and the development of livestock products.

v Modified yield calculation procedures that provides for the maintenance of a producer's actual production history when yields have been reduced by natural disasters.

v Ensured eligibility for prevented planting coverage and guaranteed ability to plant a "ghost" crop for producers unable to plant, or who sustain a failure of a planted crop due to conditions beyond their control.

v Expanded authority to allow producers the ability to utilize several disaster relief programs, with a cap on maximum available benefits if necessary.

The driving force behind any insurance program is to provide protection from economic losses. The risks faced by agricultural producers are numerous; including: production - both prevented planting and yield loss, quality, market, price and revenue risks. It is essential that new products and coverage options are developed and introduced into the marketplace that more adequately address these risks and provide enhanced income protection for farmers and ranchers.

We believe viable income protection coverage must be capable of addressing a number of factors. These include: extended periods of low commodity prices, losses associated with quality deterioration that reflect actual market discounts and adjustments, provide replacement income for producers who are unable to plant a crop due to conditions beyond their control, and allow producers the opportunity to mitigate prevented planting losses of one crop by planting a substitute or "ghost" crop.

We support the development of a dollar per acre coverage option that would allow producers to select, within a predetermined range, the dollar level of revenue coverage they desire on an acre basis. This option would reduce program complexity for the purchaser and provide a broad range of coverage that can be tailored to the individual producer's economic needs.

Maintenance of adequate income protection over time is a critical need for producers who suffer multi-year losses due to weather related occurrences beyond their control. New procedures must be developed to address the yield reductions associated with these disasters. In addition, those who suffer losses associated with declared disasters should be eligible to participate in all available relief programs, possibly subject to an overall maximum benefits cap, rather than losing eligibility for one program because they are a participant in another.

Improved income protection also requires the expansion of insurance programs to cover additional crops, including enhanced forage coverage, and livestock.

2. Restructuring the authority and operations of those agencies responsible for product development, implementation and oversight of USDA's crop insurance programs through:

v Expansion of the Federal Crop Insurance Corporation's (FCIC) pilot program authority so it may offer nationwide pilot programs.

v Increased producer representation on the FCIC board of directors.

v Clarification of the relationship of the Risk Management Agency to the FCIC.

The public/private partnership that develops, implements, delivers and provides oversight to the federal crop insurance program must be reformed to enhance total system performance.

We believe the authority of the Federal Crop Insurance Corporation (FCIC) should be expanded to allow approval of nationwide pilot programs. This action will provide greater equity among producers and across regions, create greater fairness in the "testing" of new products as to their actuarial soundness and marketability, and expedite the introduction of coverage for new crops or innovative types of coverage for existing crops.

The roles of both the Risk Management Agency and the FCIC should be clarified and defined to increase the efficiency of the system and reduce the real or perceived bias that exists in federal crop insurance partnership. We support expansion of the FCIC board of directors to include a greater number of producers to ensure more geographic dispersion and a wider range of crop and livestock representation on the board.

Mr. Chairman, I recently participated in a farm machinery and land auction that went very poorly. Depressed commodity prices, the dismal outlook for an agricultural economic recovery, and increasing input costs are beginning to weigh on the value of agricultural assets. The farm equipment values were significantly below the levels of a year ago. Bids for the farmland were $200-300 per acre under the expected market value resulting in no sale.

The economic crisis in agriculture and rural America is real and requires a response. Our government has, in the past responded to weather related disasters, not only to assist farmers and ranchers, but also to aid others and their communities, whether they be rural or urban in nature. The difficulties we face today are the result of natural disasters as well as market failures caused by a wide range of both global and domestic factors.

In summary, Mr. Chairman, the National Farmers Union believes the existing federal crop insurance programs, structure and operations can be significantly improved without "throwing the baby out with the bath water". These changes are necessary and will be of benefit to U.S. farmers and ranchers.

We are convinced however, that crop insurance must be recognized for what it is, a part of a broader producer risk management strategy and only one component of a viable economic safety net for this Nation's family farmers and ranchers.

Mr. Chairman, thank you for holding this important hearing and today's opportunity to appear before your Committee. I look forward to responding to questions from you and your colleagues at the appropriate time.