June 21

Senate Agriculture Committee Chairman Richard Lugar (R-IN ) today is expected to reveal details of a risk management legislative package that ties increased farmer payments to crop insurance and the futures market. Farmers not eligible for annual freedom to farm payments also could receive a discount on their crop insurance.

A briefing was scheduled for 11 a.m. at which time it was expected Lugar would provide details of the risk management legislation. A summary paper obtained by AgricultureLaw shows farmers who receive freedom to farm payments would have to use at least two of eight risk management practices each applicable year to be eligible for the Lugar program.

Farmers enrolled in the program that makes transition payments under the 1996 farm law could qualify for a payment equal to 29.09% of their fiscal year 2000 payment, 36.11% of the 2001 payment and 37.21% of the 2002 payment. But the farmer would have to obtain or use at least two of the eight risk management practices in each of those years to maintain eligibility.

The eight options are:

--purchase federal or private crop insurance that is equivalent to at least catastrophic risk protection for each federally insurable crop produced on the farm;

--hedge price, revenue or production risk by entering into at least one standard exchange-traded contract for a future or option on a principal agricultural commodity produced on the farm (crops or livestock);

--cover at last 20% of the value of a principal agricultural commodity produced on the farm with cash forward or other type of marketing contract;

--attend an agricultural marketing or risk management class such as a seminar or class conducted by a broker licensed by a futures exchange;

--hedge price, revenue or production risk on at least 10% of the value of a principal agricultural commodity produced on the farm by purchasing an agricultural trade option;

--deposit at least 25% of the risk management payment into a FARRM or similar tax deductible account (for which legislation is pending in Congress);

--reduce farm financial risk by reducing debt in an amount that reduces leverage or by increasing liquidity;

--reduce farm business risk by diversifying the farm's production.

The package also includes a crop insurance premium discount for farmers not eligible for the 1996 farm law payments and provides for limited crop insurance reforms. For the 2000-2002 crops, producers of insurance crops who are not enrolled in the payment program could receive a premium discount of 35% for buying up their crop insurance protection through the 75% of normal yield and 100% of normal price coverage.

An 85% of normal yield and 100% of normal price coverage would be made available in counties with a low loss ratio. The current maximum generally is 75/100. Pilot projects would be required to encourage innovation and premium rate competition and explore the potential for covering non-insurable crops and livestock through whole farm revenue insurance.