Senate Ag Committee Members Criticize FAPRI Report

November 12, 1999

Nine GOP and Democratic members of the Senate Agriculture Committee have written a "Dear Colleague" letter of their own criticizing some of the conclusions in a FAPRI analysis of crop insurance reforms. The letter comes one day after committee Chairman Richard Lugar (R-IN) wrote senators defending his stand on reform. The back-to-back developments illustrate the rift on the committee over the direction of crop insurance reform.

The most recent letter opens with a reference to lack of support for Lugar's bill. The bill supported by the nine members has the backing of a bipartisan majority of committee members and 25 members of the full Senate, they say. Lugar's bill is supported by six members of the committee.

An analysis of crop insurance reform was released by the Food and Agricultural Policy Research Institute (FAPRI) designed to analyze the benefits to farmers under both bills. The bill supported by the nine members who wrote other senators was crafted by Sens. Pat Roberts (R-KS) and Bob Kerrey (D-NE). Also signing the letter were Sens. Larry Craig (R-ID), Kent Conrad (D-ND), Minority Leader Tom Daschle (D-SD), Max Baucus (D-MT), Tim Johnson (D-SD), Rick Santorum (R-PA), and Charles Grassley (R-IA).

"The FAPRI study seems to argue that because crop insurance will only provide assistance when producers lose a crop, it is not a successful program," the senators write. "Does this mean that since you do not die, suffer a house fire, have a wreck, or become hospitalized during the year that your life, home, auto and health insurance are not successful programs or worthwhile investments?"

Because the FAPRI study does not include several "important factors," they add, it becomes "an inadequate study." Among those factors are a lack of consideration of changes to the Noninsured Assistance Program, specialty crop insurance programs and incentives to increase participation in these programs included in the Roberts-Kerrey bill.

"These programs represent significant components of this legislation that will dramatically affect the impact of this legislation on producers nationwide. Additionally the study does not take into account the increased costs associated with creating and administering the program proposed in the Lugar bill."

Lugar's bill makes available a risk management payment to farmers who undertake any two risk management actions from a list of eight. The payment would be about 1.5% of the farm's crop value based on historical price and yield factors.

In his Nov. 9 letter to senators, Lugar said he believed his plan "would maximize the portion of the $6 billion (in budget authority for crop insurance) which actually gets to farmers as opposed to substantial sums allocated to insurance companies and the administration of crop insurance."

Farmers would "have incentives to learn much more about overall risk management and the distribution of money would be relatively equitable to all states and sectors of our country," says Lugar. "We would not subsidize over production and thus literally cause lower prices."

The nine senators, however, believe the FAPRI study is flawed because "it was conducted assuming normal weather patterns across the nation during the four-year period analyzed. No analysis was conducted to determine the effect of one or more significant `shocks' during the period," they say.

"If Congress simply provides direct payments to producers (as in Lugar's bill) instead of improving the crop insurance and NAP programs, will producers then be asking for additional direct payments in the form of disaster payments when, not if, a weather shock occurs?" they add.

"It should not be surprising that a program that provides direct cash payments is shown to provide higher farm income when compared to a program that is intended to allow farmers to manage risk," the senators continue. "We believe most producers use crop insurance in order to manage their risk and keep their operations in business when a worst case crop failure takes place."