House Farm Bill Offers Both Direct Payment-like 'Transition Payments' and STAX for 2014 and 2015 Cotton Crops

May 12, 2013 09:15 AM

via a special arrangement with Informa Economics, Inc.

At issue: When will RMA be able to implement STAX and SCO?

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The House farm bill includes a transition payment provision which attempts to bolster the cotton producers' safety net for 2014 and 2015 crops should USDA's Risk Management Agency (RMA) not be able to implement the STAX revenue assurance program in a timely manner. The Senate bill does not include a similar transition payment, but relies on STAX as the cotton safety net program, with the Congressional Budget Office (CBO) assuming the program would be implemented beginning with the 2014 crop (thus, Fiscal Year 2015 costs).


In the proposed House farm bill, "transition payments" would be offered via Title I, but only to cotton producers for 2014 and 2015 crops, even if the cotton revenue program called STAX (Stacked Income Protection Plan) is available for those crop years.


Some say the power of Brazil is evident in the US cotton farm program in both the House and Senate farm bills. Brazil in the past successfully challenged US cotton subsidies.


Background: The House farm bill proposals would alter the STAX revenue insurance program for cotton (via the crop insurance title) by removing the reference price opposed by Brazil and the US National Cotton Council (NCC). Brazil won a WTO challenge to US cotton subsidies. Under the transition payment program included in the House Title I program, but not the Senate farm bill, cotton growers could garner 70 percent of their prior direct payment (6.667 cents per pound) in crop year 2014, and 60 percent of their direct payment in crop year 2015 – these would not be called "direct payments" but "transition payments" even though they are based off the prior direct payment level


Unlike last year, CBO assumes STAX will be in place for the 2014 crop, budget sources signal, thus including a STAX cost beginning in Fiscal Year 2015. Some cotton industry contacts signal the House likely wanted the transition payment for two years (2014 and 2015 crops) due to the substantial change in cotton policy ahead, giving enough time for producers to be educated and to adjust for major safety net reform, and for the possibility that USDA's Risk Management Agency (RMA) will not be able to implement the program in time for the 2014 crop, or at least not in all cotton counties.


What few observers know and/or have reported is that under the House farm bill proposal, cotton producers could enroll in both STAX and still be eligible for the transition payment for both 2014 and 2015 crops. If enrolled in the transition payment program, the producer could not collect both ARC or PLC benefits (for other crops on the farm) on the same acres in which transition payments are enrolled for cotton base.


The Standard reinsurance agreement (SRA) is key for STAX, and SCO. USDA allows private insurance companies that participate in the federal crop insurance program to transfer a portion of their risk to the federal government. The SRA establishes the terms and conditions under which the federal government will provide subsidies and reinsurance on eligible crop insurance contracts sold or reinsured by the insurance company named on the agreement. It takes effect July 1 of the preceding year – thus for 2014 crops, policies must be in place by July 1, 2013. That is important relative to the coming farm bill debate – especially for the cotton STAX program because Risk Management Agency (RMA) spokesman John Shea on Friday insisted that the agency would, in fact, have the program ready for 2014. Other RMA comments said it depends on "timely" implementation of the new farm bill. Despite CBO apparently assuming STAX will be implemented for the 2014 crop, a STAX policy cannot be part of the SRA if a new farm bill is not yet signed into law by July 1, the date of the SRA. Most observers think it could take into late-summer, early fall before any new farm bill is completed and signed into law. The proposed Supplemental Coverage Option (SCO) included in both the House and Senate farm bills would also be contingent on the SRA July 1 date.


Another interesting cotton program issue is why the Senate did not include a similar transition payment under their farm bill proposal. As noted previously, the coming CBO score for both the Senate and House farm bills will include costs for STAX beginning in Fiscal Year 2015 – the 2014 cotton crop. The CBO score for the transition payments, according to budget sources, is $823 million for the 2014 and 2015 crops. Some say the Senate farm bill is not adequately protecting cotton producers if USDA is not able to implement STAX as soon as the 2014 crop.


The National Cotton Council (NCC) of America has not yet commented regarding the transition payment, but contacts say that in private talks on Capitol Hill they have made their concerns known about the STAX implementation timeline. I have asked the organization for its opinion on this and other cotton program topics.


Comments: RMA says that STAX would be available for a majority of cotton farmers and provided Congress and the President enact a farm bill in a timely way. A majority of farmers is not 100 percent and there is no guarantee on timing for this farm bill. Not many farm bill watchers believe the farm bill will be signed into law by July 1, and if that date is not met, STAX would not be eligible to be eligible for 2014 crop cotton.


The Senate position and apparently now CBO has been to simply deem that STAX will be up and running. The House, however, goes a step further in offering a phaseout of one element of current policy for a two-year period, a bridge to a radically altered and scaled down policy that may or may not be available in 2014.


Other observers note that the transition payments are decreased direct payments which will very likely garner amendment attempts in both the House and Senate to delete them.

So, the July 1 SRA is key
as to whether or not the farm bill can be signed by President Obama before that date and in time for RMA to include both STAX and the proposed Supplemental Coverage Option (SCO) in both the House and Senate farm bills – both of which are under the crop insurance title of the farm bills and thus subject to the SRA timeline.



NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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