Honorable Richard Lugar
Chairman
Senate Agriculture, Nutrition and Forestry Committee
U.S. Senate
Washington, DC   20510

Dear Chairman Lugar:

Producers cannot control the dual risks of weather and price.  However, with revenue-based risk management tools, producers can avoid the disastrous effects of low yield and low prices.  The National Corn Growers Association supports a subsidy structure for the federal crop insurance program that encourages producers to insure adequate revenue but does not artificially stimulate production.  We believe that the subsidy structure of S. 1580 - which is sponsored by ten members of this committee - accomplishes our objective.

Under the current subsidy structure, catastrophic policies are subsidized at 100 percent of premium, policies that insure 65 percent of yield are subsidized at 42 percent of premium, and policies that insure higher levels of coverage and crop revenue are subsidized at less than a third of the risk-based premium.  The current subsidy for 75 percent crop revenue coverage is less than 20 percent.

This regressive subsidy structure encourages producers to insure with catastrophic coverage or at 65 percent of yield and 100 percent of price (65/100). Then when a disaster strikes, they discover that they are woefully underinsured and are generally dissatisfied with the entire program.

This year, the Risk Management Agency promised an additional subsidy of 30 percent of the farmer-paid premium for all federally reinsured crop insurance policies.  Corn farmers responded to this supplemental subsidy by modestly increasing the total number of corn acres insured and significantly increasing the number of acres insured with revenue products.
  

	Corn Acres Insured		Change	% Change
	1998	1999	1998 to 1999	1998 to 1999
Yield Policies
MPCI Buyup	23,402,198	18,283,628	(5,118,570)	-22%
Catastrophic	15,097,889	11,737,133	(3,360,756)	-22%
Group Risk Plan	894,003	768,551	(125,452)	-14%
Revenue Policies
Crop Revenue Coverage	10,745,001	19,728,093	8,983,092	84%
Income Protection	151,116	483,846	332,730	220%
Revenue Assurance	817,299	1,141,156	323,857	40%
Group Revenue Insurance	Not available	142,594
Indexed Income Protection	Not available	30,033
Total	51,107,506	52,315,034	1,207,529	2%

This experience demonstrates the effectiveness of using crop insurance subsidies to motivate producers to practice prudent risk management.

Obviously, producers could use a direct risk management payment to purchase revenue-based crop insurance products.  However, the steep increase in cost to insure  higher levels of coverage or to add revenue coverage can quickly dissuade a producer from making the appropriate risk management investment.

We understand your desire to allow producers to choose from a variety of risk management strategies, but we are reluctant to abandon the success of using an enhanced crop insurance subsidy structure to motivate producers.  We respectfully suggest that risk reduction assistance payments be made available to producers in a limited number of states as a pilot program.  The pilot program should include the means to conduct a thorough assessment to evaluate the effectiveness of the risk management payments.

We believe it is essential that the Senate act this session to pass risk management legislation that builds on the 1999 crop insurance experience.  We hope that you will consider our views and move legislation as quickly as possible.

Sincerely,
 

Lynn Jensen
President

Copies:  Senate Agriculture Committee