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Cost of production insurance awaiting RMA review

Earl Williams, president of the California Cotton Ginners and Growers Association in Fresno, Calif., is frustrated at the delay.

"Never has there been a time more important than today to get a workable cost of production insurance program on the market," said Williams. "The type of package that has been developed by AgriLogic would be a tremendous risk management tool for producers and lenders to hang their hats on in these tough times."

The Coalition of American Agricultural Producers (CAAP) is a non-profit organization that has been the catalyst to get this program off the ground. Its members are directors of AgFirst Farm Credit Bank, Farm Credit Bank of Texas, Western Farm Credit Bank and commissioners of state departments of agriculture.

AgriLogic is a Texas-based consulting firm made up of executives with more than 50 years of combined experience in risk management agriculture, which has developed the package after meeting with producers throughout the country.

AgriLogic developed its plan under contract with RMA.

The plan, according to Williams and AgriLogic would enhance producer’s ability to survive not just weather disasters, but economic crisis not caused by disasters.

However, this plan does not allow producers to "lock in profits," through revenue enhancing insurance programs such as Crop Revenue Coverage (CRC), according to Joe Davis, CEP of AgriLogic.

"The originators of this concept wanted to remove the financial incentives of ‘farming the insurance program,’" said Davis. "While the majority of crop producers do not abuse the current program, there are a sufficient number who do, causing the program to received repeated calls for reform."

Harder to abuse

Davis said no program can be abuse-proof, but "it will be harder to abuse this concept."

Williams said the cost of production insurance program has considerable support from across the U.S.

"Ag credit banks funded the development of this concept because they recognized the need to develop something that fits the needs of most farmers," said Williams.

"It is terribly disappointing that after two years of work, we still do not have a package. The federal government has thrown $8.8 billion at crop insurance reform and California producers and many others are still left out in the cold without a good, workable crop insurance program.

"What is so appalling to me is that RMA has approved all the programs that have been abused but when it gets a program that seems to avoid these problems, they seem to turn their back on it," said Williams.

RMA can take as few as 15 days to review different phases of the proposal, but Williams says the agency took a full 30 days to review the first phase of the program. "And, there is a second phase under review, plus the office of general counsel has to review the final product.

"The proposal could be expedited, but at this point the bureaucracy has chosen not to," said a frustrated Williams. "Hopefully, we can get a better indication of where we stand for 2002 in the next 30 days."

"We are applying considerable pressure to get the job done."

Initial phase

The initial phase of the pilot program would cover not only the major commodities like upland cotton in many counties across the Cotton Belt, but would also almonds, soybeans, corn, nectarines, onions, peaches, rice, sugarcane, wheat, cranberries and apricots.

The program would cost producers from 4 to 8 percent of their verified production costs. Davis expects the federal government to pick up 50 percent of the premium costs. Producers can elect the coverage he wants in each of three categories, variable costs, fixed costs and land costs.

"The idea of this program is to keep a producer in business…not guarantee a profit," said Davis, who added that if a producer elects to take maximum coverage, the most he could lose would be 10 percent of his productions costs. Losses would be documented through a producer’s records.

Current crop insurance programs have never been widely utilized in California, according to Williams, because current catastrophic insurance programs are not applicable.

"We do not lose entire crops to disasters and deductibles and the cost of buying up to levels that make sense for California is not affordable to producers," said Williams. "Insurance programs now do not pay for the type of losses we incur."

Insurance reform is not a California-only issue.

Abernathy, Texas cotton producers Jerry Oswalt, a farmer on the Texas High Plains was one of the early advocates of the program and lobbied to win support for reform from the Texas Farm Credit Bank and others.

"You buy insurance to protect your investments in cars and homes. We need the same thing in farming," said Oswalt.

"This program is for the true producer…not the farmer who is trying to farm a government insurance program," Oswalt said. "It is for a producer who is trying to stay in business and produce a crop."

AgriLogic campaigned the idea across the U.S. this year and now are awaiting RMA’s approval to roll it out.

"It will be terribly disappointing if we do not get something for this coming crop year," said Williams.

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