National Cotton Council: Farmers Need Risk Management OpportunitiesFri, 20 Apr 2012 16:01:52 CDT
Texas cotton producer Woody Anderson said here today that Congress needs to approve a new farm bill this year and one that will provide American farmers the key to long-term viability -- effective risk management opportunities.
A former chairman of and now advisor to the National Cotton Council, Anderson testified at a House Committee on Agriculture farm bill hearing that the high costs of seed, fertilizer, fuel and other inputs coupled with the vagaries of weather has made the risk of producing a crop never greater. He pointed to last season when he was unable to harvest a single acre of cotton due to the prolonged drought in his state - one the Texas Comptroller indicated has resulted in indirect and direct losses approaching $9 billion.
"I also urge the committee to complete the farm bill this year - in advance of the expiration of the current legislation," Anderson said. "We need some certainty regarding farm programs as we look at the long-term investments necessary to keep our farming operations economically viable."
He told the panel it is important that budget constraints and farm program critics not be allowed to undermine the farm safety net's effectiveness. He called for a range of farm programs structured to address the needs of the different commodities and production regions, saying a "one-size-fits-all farm program" cannot address the diversity of American agriculture.
Regarding the cotton program, Anderson said it is very important that the new farm legislation includes the cotton industry's proposal of a new revenue-based crop insurance product, one that will strengthen growers' ability to manage risk. He said the Stacked Income Protection Plan (STAX) would complement existing products and provide a tool for growers to manage that portion of their risks for which affordable options are not currently available.
"This revenue-based crop insurance safety net would be combined with a modified marketing loan that is adjusted to satisfy the Brazil WTO case," Anderson testified. "Even with modifications, the marketing loan will remain an important source of cash flow from merchandisers and producers."
He also emphasized that given the diversity of weather and production practices, the menu of insurance choices should be diverse and customizable, thus allowing for maximum participation and the most effective coverage. He asked that the enterprise unit pricing option, introduced in the 2008 farm bill, be maintained and expanded to allow a producer to apply enterprise unit pricing to acres that are separated by irrigated and non-irrigated practices.
Anderson conveyed the cotton industry's concerns regarding scrutiny of risk management programs being considered for the farm bill. He said despite the dramatic increase in last year's indemnities, total crop insurance indemnities remain below total premiums, and thus, "the program is operating at a loss ratio less than 1.0." He also expressed concern about a recent General Accountability Office report calling for arbitrary limits on insurance programs.
"My concern is founded in the fact that crop insurance is a basic safety net that only indemnifies a grower when he incurs a loss," Anderson stated. "Even then, the grower is not made whole and is only compensated for a portion of his loss. The value of crop insurance coverage is based directly on the expected market value as determined in the futures market. For Texas, I can assure this committee that any limits or eligibility requirements that deny farmers the opportunity to purchase affordable insurance products will completely undermine the ability to secure production financing."
Anderson also called for the continuation of the economic assistance program for U.S. textile mills that was introduced in the 2008 farm bill by stating, "we have seen a revitalization of the U.S. textile manufacturing sector, as evidenced by new investments and additional jobs." He also pointed out the need for adequately funded export promotion programs such as the Market Access Program and the Foreign Market Development Program.
"Individual farmers and exporters do not have the necessary resources to operate effective promotion programs which maintain and expand markets," Anderson stated, "but the public-private partnerships, using a cost-share approach, have proven highly effective and have the added advantage of being WTO-compliant."
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