Farm Bureau Proposes Modified STAX for All Commodities and Farmer Choice

April 8, 2013 07:00 AM
 

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Opposes cuts or payment limits for crop insurance, against linkage with conservation compliance.

A modified Stacked Income Protection Plan (STAX) for all commodities along with a producer choice are key components of farm bill proposals from the American Farm Bureau Federation (AFBF).

Keys for the overall farm bill are, according to AFBF:

  • Offer producers a choice of program options;
  • Protect and strengthen the federal crop insurance program and do not reduce its funding;
  • Provide a commodity title that works to encourage producers to follow market signals rather than making planting decisions in anticipation of government payments;
  • Refrain from basing any program on cost of production; and
  • Ensure equity across program commodities.

 

As for budget savings, AFBF backs a $23 billion reduction over 10 years, noting the updated scoring of the 2012-passed Senate farm bill now has that package saving $13 billion instead of the original score of saving $23 billion over 10 years. "Chairwoman Stabenow has indicated she intends to draft a bill that continues to spread the cuts among commodities, conservation and nutrition programs," AFBF noted. "We have assumed these savings will be made in a manner similar to last year's Senate-passed bill."

Regarding the additional $10 billion in savings, the group said their plan "takes into account the additional $10 billion required reduction in spending over last year's version. For purposes of this proposal, we assume the commodity title will be targeted for $5 billion in savings and another $5 billion reduction will be divided between the conservation and nutrition programs."
STAX for nearly everyone. AFBF is proposing to offer program crop producers TAX, an improved crop insurance program, target prices, and marketing loans as their new safety net.

"As was the case with both the Senate and House Ag Committee passed bills in 2012, we assume that direct payments, the ACRE program and the crop portion of the SURE permanent disaster program will be eliminated in the 2013 Farm Bill and the savings used to reduce the Federal budget deficit and to fund a new producer safety net," the group said.

A three-legged safety net stool is the focus for AFBF, with producers able to select between a STAX program and a target price program for their first safety net program. All program crop producers will have the marketing loan program and the crop insurance program available to them as additional risk management tools.

Since producers may not be convinced that STAX can provide producers with adequate protection when prices decline, AFBF said they think target pricdes "will be preferred by some producers." But AFBF admits the challenge is to "ensure that offering a variety of program options avoids inducing producers toward planting decisions based on farm program benefits that accrue more beneficially to a particular crop."

In calculating the estimate of available funding, AFBF said they worked from the February 2013 ten-year Congressional Budget Office (CBO) baseline projections for the major commodity programs contained in S. 3240, which were:

  • Agricultural Risk Coverage (ARC) = $31.0 billion.
  • Supplemental Coverage Option (SCO) for all commodities except cotton = $2.9 billion.
  • STAX for cotton = $3.7 billion.

 

This totals $37.6 billion. Reducing this amount by the $5 billion additional reduction necessary per the February 2013 CBO scoring leaves $32.6 billion available to fund a viable safety net for producers.

In addition to offering STAX for all program crop producers, AFBF recommends it also be offered for for apples, potatoes, tomatoes, grapes and sweet corn. "Covering these five specialty crops will benefit fruit and vegetable producers in 44 states," AFBF said, and are the same five crops the AFBF Board recommended to be covered last year.

The STAX program contained in the 2012 versions of the Senate farm bill would have resulted in losses being indemnified if the county revenue loss was between 10 percent and 25 percent of expected county revenue if there was an underlying individual policy. If selected as a stand-alone policy, the 25 percent maximum increased to 30 percent.

Premiums would have been subsidized at 80 percent and a payment rate multiplier of 120 percent was offered if producers wanted to increase the amount of protection per acre.

Producers were also offered the option of a harvest price election.
Perhaps importantly, AFBF noted a program formulated like that for all commodities "would cost $82 billion, significantly more than $32.6 billion projected to be available for new safety net and risk management tools in the farm bill."

To address that cost issue, AFBF is proposing for STAX:

  • reduce the premium subsidization to 70 rather than 80 percent;
  • do not offer the multiplier option;
  • do not offer a harvest price option;
  • allow STAX to be based on yield or revenue at the discretion of the producer; and
  • allow only as a buy-up policy with a 10-25 percent deductible rather than also providing for a stand-alone policy.

 

Those changes would indicate "the program can be offered for about $28 billion over 10 years," AFBF said, basing the participation rate in the STAX program of 80 percent for corn and soybean production; 65 percent participation for wheat production; 90 percent participation for cotton production; and no participation from rice and peanut producers." The group also assumes about 10 percent of all producers of program crops, except for rice and peanuts, will not participate in any program and that 5 percent of rice and peanut producers will not participate in any program.

In addition for target prices, AFBF said they recommend basing them on the market-year average price for the past five years (2007-2011) and those projected by CBO for 2012-2016.

To establish the actual target prices, these 2007-2016 average prices are reduced by 25 percent for corn and soybeans, 15 percent for wheat and 10 percent for rice and peanuts. Wheat has an adjustment of only 15 percent because it is produced mostly in the larger counties in the western U.S., making area yields less representative of individual producer experience in these regions so that area-based programs are less effective. The smaller 10 percent adjustment is applied to peanuts and rice as both crops lack insurance products that function as well as those available to the major grain and oilseed commodities; no payments would be made until the county average revenue or yield fell by 10 percent from the historic amount.

Also, AFBF recommends "basing target price protection on 85 percent of planted acres, but not to exceed a producer's historical base acreage." Going that route would put the cost of a target price program at $6.3 billion.

For Title I of the farm bill, AFBF offered the following:

  • Use the resulting savings from the expected elimination of the Direct Payment, ACRE and SURE programs to help cover both savings requirements and the costs of revised safety net/risk management provisions.
  • Extend the current marketing loan programs (MLGs and LDPs) for all commodities at the current loan rates, with the exception of cotton. That rate could decline from the current 52 cents per pound to 47 cents per pound to comply with the WTO Brazil Cotton Case, and was included in both the Senate and House Ag Committee bills last year.
  • Continue the current sugar program, including nonrecourse loans and marketing allotments as in current law.
  • Reauthorize and fund with mandatory money the four expired disaster programs. This includes the (a) Livestock Indemnity Program (LIP), (b) Livestock Forage Program (LFP), (c) Emergency Assistance for Livestock, Honey Bees and Farm-Raised FishProgram (ELAP), and (d) Tree Assistance Program (TAP).
  • Oppose additional payment limits or means testing for any commodity program.
    Support the concept of a gross margin insurance program for dairy rather than the current price support and Milk Income Loss Contract.

 

As for crop insurance, AFBF proposes the following:

  • Mandate that USDA establish a revenue insurance program for peanuts.
  • Mandate that USDA work to establish another revenue crop insurance policy for rice producers.
  • Mandate enterprise unit coverage so producers will be able to purchase separately for irrigated and non-irrigated acreage.
  • Mandate that beginning farmers or ranchers will receive premium assistance that is higher than provided to others.
  • Mandate additional studies on insuring specialty crop producers for food safety and contamination-related losses.
  • Mandate additional studies on commercial poultry production against business disruptions caused by integrator bankruptcy.
  • Improve the Noninsured Assistance Program (NAP). Currently, producers must suffer at least a 50 percent crop loss or be prevented from planting more than 35 percent of intended acreage to collect. For losses above those thresholds, a producer receives 55 percent of the average market price for the commodity. Allow additional coverage at 50 to 65 percent of established yield and 100 percent of average market price. Producers would pay a premium for such coverage.
  • Oppose additional payment limits and means testing on any crop insurance programs.
  • Oppose linking conservation compliance with crop insurance programs.
  • Support making the pilot program for higher premium subsidies for enterprise units permanent.
  • Support enterprise unit coverage being available for irrigated and non-irrigated acreages of crops.

 

For the rest of the bill, AFBF recommended the following:

  • Achieve the vast majority of necessary reductions in conservation funding from the land retirement programs rather than working land programs;
  • Consolidate conservation provisions under 13 programs, rather than 23, and focus on administrative savings and simplicity in the remaining programs;
  • Expand the State Block Grants for Specialty Crops program and funding for research for specialty crops as well as technical assistance at USDA;
  • Authorize a public/private foundation to solicit private donations to enhance research for meeting expanding global demand for food;
  • Authorize and fund the Market Access Program and the Foreign Market Development Program; and
  • Support many of the 37 expiring programs subject to funding availability.
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