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Louisiana: post-hurricane insurance, contract concerns

Early-season and late-season weather-related disasters badly impacted Mid-South growers. At a Senate Agriculture Committee hearing on the disasters — and the federal government’s response to them — Congress was called out for dithering over the farm bill and USDA was chided for its slow implementation of it.

After a trio of hurricanes recently hammered his state, Mike Strain, Louisiana agriculture commissioner, pointed to inadequate crop insurance as a major issue.

“The farm bill was signed late. Had producers known that there would be a disaster program that was based on their crop insurance coverage levels; they may have made different coverage decisions. In order to be eligible for the SURE (Supplemental Revenue Assistance) program, USDA requires farmers to purchase catastrophic (CAT) insurance or participate in the Noninsured Assistance Program.”

Thin margins and the high cost of buy-up coverage means “crop insurance protection and participation is relatively low in Louisiana and other Southern states. Although a farmer may have only harvested a portion of his crop, he may have already surpassed the yield threshold.”

After meeting with his insurance agent, a cotton farmer told Strain that although he has more than 1,000 acres of cotton and is facing a 50 percent crop loss, preliminary calculation shows he will receive only $3,300 in insurance proceeds.

Disaster provisions of the new farm bill are inadequate and the lag time for potential payments far too long, said Strain. “Many of our crops will not qualify for assistance under the current disaster provisions. All of the rules and regulations of the new farm bill have not been written and payments may not be available until October or November of 2009. Our farmers cannot wait this long for assistance.”

Fulfilling contracts is also at the front of grower concerns.

“Farmers are asking how to meet these contracts and determine ways to meet other financial obligations,” testified Jay Hardwick, a grower from Newellton, La., and vice chairman of the National Cotton Council. “One can only imagine the shock and awe of what has happened in our area. Having no crop to sell or a damaged crop to apply to contracts may initiate an economic disaster perhaps far greater than the weather events alone in Louisiana.”

Echoing Hardwick, Strain said farmers “prudently, but cautiously, forward contracted a portion of their commodities to take advantage of higher prices. Because of the substantially reduced yields at harvest, many of the contracts won’t be completely filled. The grain elevators expect the farmer to deliver all of the contracted grain and could possibly refuse to pay the farmer for partially fulfilled contracts.”

Farmers are financially liable for any unfulfilled portion of a contract, said Strain. “The elevators have already contracted out the grain that they expected to buy from the farmers. This creates a vicious cycle. The elevators, the lenders and the farmers will have to work closely together to prevent the failure of any of these businesses.”

And that isn’t the end of the contract concerns. A farmer may have a partially filled contract, “but the elevator may not pay him until the contract is filled,” said Strain. “The bank that’s made the crop loan to the farmer has a lien against the crop proceeds. This could be a very sticky issue and could eventually end in court if all parties do not cooperate.”

Some growers “expect crop insurance to provide most of the necessary financial assistance,” said Hardwick. “While almost all cotton acres have some insurance coverage, 54 percent have the minimum (CAT) coverage.… This coverage provides minimal benefits only if there are catastrophic losses.”

Hardwick said Catahoula and Concordia parishes were among the parishes most hurt by the hurricanes. “They had only CAT level policies on over 37,000 acres of cotton. I have the same coverage.”

Southeast Louisiana sugarcane grower Dickie Ellender told the committee that growers have traditionally had access to only one type of crop insurance policy, the actual production history (APH) program.

“The cost of the APH has been prohibitively high. The USDA’s RMA (Risk Management Agency) has acknowledged this in the past and lowered APH rates in response to potential competition from farmer-developed group GRP policies.”

While rates are lower, the buy-up coverage “is not seen as reducing our actual risk by a sufficient amount to make the added expense worthwhile to most farmers.”

And sugarcane is often too resilient for insurance to kick in, said Ellender. Despite destructive natural forces that are sometimes unleashed against it, “the sugarcane plant is a hardy survivor. Catastrophic production losses — meaning losses over 50 percent — are rare.

“Since 1995, when Louisiana sugarcane participation in crop insurance went from $2 million in liability to over $61 million, the cumulative loss ratio has been approximately 0.17. Since 90 percent of our policies are basic catastrophic coverage — the prerequisite for disaster assistance eligibility in the past — this loss ratio can conceal significant losses to a farmer’s bottom line.”

The permanent disaster assistance program included in the new farm bill has not been implemented, claimed Ellender. “And regulations explaining how the USDA will administer the program are still under development.

“As I understand it, the (SURE) program provides payments to producers in disaster counties based on crop insurance programs. Regrettably, we’ve been unable to find an accurate SURE calculator for sugarcane to gain better understanding of the actual assistance that might be available to farmers.”

Congress, though, “has developed a disaster assistance mechanism that works. In response to the 2002 and 2005 hurricanes, Congress developed … an ad hoc assistance to sugarcane growers in Louisiana that is tailored to the types and levels of damage associated with hurricanes in cane fields. This mechanism targeted the portion of the overall package to address losses and costs from plant-cane lost to hurricanes. Another portion of the package was designed to offset some of the increased planting and harvesting costs we incurred. A final portion was allocated to address yield losses and other sector-wide losses.

“Congress was able to link the bulk of the assistance directly to the specific losses, or costs, to the hardest hit producers in our area while reserving a portion to address yield losses virtually every producer (saw).”

Federal disaster assistance is needed now, not next year, insisted Hardwick. “I encourage Congress to develop a plan that will deliver financial assistance to producers in a timely manner. Enhanced crop insurance coverage, timely ad hoc disaster relief, supplemental payments delivered in the same manner as direct payments, and enhancements to the provisions of the permanent disaster programs should all be considered in order to expedite assistance that is commensurate with the losses that have been incurred. Additional funding for existing cost-share conservation programs would help speed restoration of damaged fields.”

Hardwick also called on Congress to “consider providing some form of financial assistance to gins, warehouses and other key components of our infrastructures that will experience significant financial losses due to sharply reduced volumes.

“The economic losses caused by the hurricanes are dramatic and severe. Timely assistance is needed. Most farmers simply do not have the financial resources to wait until 2009.”


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