Question Is Not Whether but How

October 15, 1999

Providing financial assistance to farmers for risk management "is a sensible" option, says Bruce L. Gardner of the University of Maryland. The question then, he adds, is how to establish policies to permit maximum flexibility for farmers and not distort their incentives. Gardner testified Thursday before the Senate Agriculture Committee.

"Distort" means policies that induce producers to undertake planting decisions or production practices that reduce either the efficiency or sustainability of U.S. agricultural production, Gardner says.

People have argued that subsidizing crop insurance would not influence farmers' actions to any significant extent, he says. "I believe however that careful examination of the situation and evidence will convince doubters that pricing really is important."

Promoting a broad array of risk management tools is "less distortive" than a focus on crop insurance, but also "a given amount of government outlays will generate more real benefits to farmers under a broad-based approach."

Some farmers will be induced to buy additional crop insurance "if the program provides assistance only for that purpose," he adds. But they would get "significantly more value for money if allowed to purchase a risk management tool better suited to their situation."

The farm community would "rather receive $1.5 billion" under a bill by Senate Agriculture Committee Chairman Richard Lugar (R-IN) "than under the more restrictive terms" of another bill introduced by Sen. Pat Roberts (R-KS), says Gardner.

Craig Hill, Iowa Farm Bureau Federation board member, told the committee that the Farm Bureau supports the Roberts bill, co-sponsored by Sen. Bob Kerrey (D-NE). An expanded crop insurance program must include higher subsidies and extended coverage for additional crops and livestock, he says.

As farmers buy higher levels of coverage, premium subsidies decline. It could cost a farmer $44.87 more per acre to increase his liability coverage by $45 per acre, says Hill. With higher subsidies in place, more farmers will be encouraged to increase levels of coverage, he adds.

Lugar says he used four principles in crafting his bill. The "greatest possible amount of the $6 billion (spent on crop insurance by the federal government) should to directly to farmers." It should be provided "In such a manner that it does not distort planting decisions." It should be distributed "equitably" among farmers and regions, and farmers should be encouraged to "pursue a variety of risk management strategies."

The bill directs USDA to offer a contract to producers in which the producer receives a risk management payment, if the producer performs at least two of eight risk management practices each year between 2001-2004.