April/May 1997
Growers Offer Ways to
Improve Risk Management
By Tracy Sayler
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
Bruce Hamnes (right), Allan Skogan (middle) and several other growers from the Northern Plains met recently with Jim Bair (left) of the Millers National Federation in Washington, D.C. Vomitoxin is a food safety issue that is a research priority for the MNF. "You couldn't have a worse name for something than vomitoxin, with the exception if it were named nuclear vomitoxin," says Bair. Growers hope to work more closely with the MNF to address this and other issues.
Risk management was one of several key policy issues discussed by leaders of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, and South Dakota Wheat Inc. in talks with lawmakers and federal officials recently in Washington DC.
Should record snowfall create extraordinary late planting circumstances in 1997, growers recommended that a fair, inexpensive remedy to help address the situation would be to extend the final planting date for federal crop insurance, and push back the one percentage loss per day of crop insurance coverage guarantee.
Separately, new quality adjustment factors in settling multi-peril crop insurance (MPCI) loss claims are in place for wheat in the 1997 growing season and succeeding crop years. The quality adjustments, in actuarial tables by county, have been effective for corn and soybeans for three years. The new adjustment method evolved out of concern that previous adjustment factors (applied when kernel damage was greater than 10% and test weight fell below 52 pounds) could be manipulated or influenced in the marketplace, or on unsold production.
However, although the new factors may be a more standardized and uniform measurement of quality losses, they do not reflect actual marketplace discounts. One Kittson County, MN grower has calculated the difference in indemnity under actual market discounts compared to the new federal calculation method to be $4.62 per acre, or $4,620 on 1,000 acres. The magnitude of the problem increases with the quantity of bushels considered, and with the severity of a grain quality problem, such as a high percentage of scab in wheat.
Growers presented a list of recommendations to improve the Risk Management Agency's (Federal Crop Insurance Corporation) nonstandard classification system, which is pinning some farmers with a high-risk, high-premium label, simply because of multiple weather-related crop disasters out of their control.
Two factors are the key to grower participation in the crop insurance program, growers said: affordability and value. They offered the RMA several ideas to consider:
- Offer the Income Protection plan at election levels of 80% to 90% for single (whole) unit coverage.
- Offer discounted premiums or better coverage election levels for good experience (perhaps three years, claim-free).
- The federal cost-share rate for crop revenue coverage should be a percentage of the total premium cost, as opposed to a set rate per acre.
- Increase the whole-unit coverage discount for MPCI and other products from 10% to 30%.
- Implement a pilot MPCI program, patterned after private hail insurance, under which the producer would select a dollar amount per acre coverage (not to exceed the value of the crop); RMA could set the dollar (or bushel) deductible for each crop; and the individual farmer would then select the preferred deductible with the corresponding rate and dollar amount of liability wished to be purchased.
Funding for reimbursement of crop insurance companies and private agents for carrying federal crop insurance policies was discussed; the federal reimbursement has been as high as 32% in recent years, but is projected to be 28% for fiscal year 1998 (at a total projected federal cost of $202 million), and it could drop even further in the future, as reimbursement funding is partly discretionary. More reimbursement cuts, combined with an expected increase in the use of crop and revenue insurance programs that farmers will use to offset farm program reforms, could tip the risk management boat if the funding problem isn't remedied.
Also, prevented planting crop insurance coverage may be significantly modified for the 1998 crop. That's because of conflicts between the 1996 Farm Bill, which eliminated acreage bases and certain limitations on planting flexibility, and prevented planting rules under the old law. Prevented planting changes proposed by the RMA are expected shortly and will be subject to public comment.
Other issues wheat growers brought to the attention of policy makers:
E.U. wheat gluten dumping - Existing tariffs in the European Union (EU) make it possible for wheat processors there to protect their starch markets and sell wheat starch within the EU for twice the world price. They then use their starch profits to subsidize the sale of the co-product, wheat gluten, in world markets at prices below the cost of production. The EU practice is a threat to premiums paid for high protein wheats produced by U.S. farmers. It's a threat as well to U.S. gluten processors; if driven out of business by heavily subsidized gluten imported from the EU, a domestic market for 50 million bushels of U.S. wheat would be eliminated. The U.S. wheat gluten industry has filed a section 301 petition, which provides the means for U.S. businesses and workers to seek U.S. government intervention in gaining relief from unfair foreign trade practices.
FY98 Ag budget - Over the past 12 years, farm program spending has been reduced by 79%, while total federal spending rose by more than 50%. Keep ag market transition payments and the ag budget off the chopping table; if all federal programs had taken the same level of cuts as agriculture, a government budget surplus would exist today.
CRP - Maintain at the 36-million-acre level authorized by Congress. Balance the program to address wind erosion, and rental rates are too low in some areas. An optional one-year extension of contracts which expire this fall will help growers manage land not accepted for re-enrollment. Further, a phased-in contract rollover would allow for the new rules to be tested and modified if necessary.
Crop protectants - The Food Quality Protection Act of 1996 replaces the Delaney Clause with a new "reasonable certainty of no harm" standard regarding pesticide residues. The Environmental Protection Agency (EPA) should seek complete knowledge of how specific crop protection products are used in agriculture as it evaluates the health risks of pesticides, and ensure that growers will have products available to control serious pest problems. The FQPA should not be allowed to slow new product registrations, nor Section 18 exemptions for allowable and effective emergency-use products.
Taxes- Pass legislation to reverse and correct the IRS interpretation concerning the tax treatment of deferred payment contracts (treatment of forward contract sales under the alternative minimum tax). Modify tax treatment for capital gains. Reform the estate tax law. Create an equitable method of income averaging to even out the tax effect of fluctuating incomes.
Value-added - Legislation is needed that would remove the taxes on the gain from a sale of a business or facilities to a producer-owned, non-federated cooperative. The 1996 Farm Bill established language to set up loan guarantees for the purchase of stock in farmer-owned processing cooperatives. Loan programs like this are needed to provide start-up capital, and more lending institutions need to develop uncomplicated, value-added specific loan programs. Continued support is needed for USDA cooperative development centers in the United States.