'Cost of production' insurance an idea whose time has come

By MONETTE TAYLOR | South Central Texas

September 20, 2001 -- The new "Cost of Production" (COP) insurance, as presented at the annual meeting of the Tenth Farm Credit District in April, is making progress, according to Bob Brown of the Farm Credit Bank of Texas' headquarters in Austin.

The Tenth Farm Credit District is the largest single source of farm, ranch and agribusiness financing in the area, according to literature from the Farm Credit Bank of Texas.

It includes agricultural lending organizations in Alabama, Louisiana, Mississippi, New Mexico and Texas.

According to Mike Garnett, Vice Chairman of the Farm Credit Bank of Texas Board of Directors, the new insurance is defined as "...a concept that allows producers of all commodities (crop and livestock) to insure up to 90 percent of actual, documented costs of production. Thus, the maximum exposure that a producer has in any one year is 10 percent of these costs, and any costs that are not covered."

"We want it to be a grassroots driven policy so that the farmers themselves, the users of the product, have input into what the policy actually does.

We've never had policies like that before," said Brown.

The policy would also address fraud in agriculture, which seems to be an ongoing problem, according to producers and lenders alike.

"This kind of policy is being built to help defray the fraud that there is out there...the people who don't farm according to the rules, or farm on the edge of the rules. The way this is put together, it's going to take out most...if not all...of the ability to have fraud in it.It's designed in such a manner to be, hopefully, fraud proof," said Brown.

Beginning the middle of July, AgriLogic, led by Joe Davis, of College Station, has been conducting "grassroots" meetings with producers in various areas of the nation.

"AgriLogic, which is the intermediary firm that we have hired from College Station to test the validity of this program, has been awarded a contract from USDA.Within that contract, they...over the next 14 months, beginning back about the first of July...are holding a series of meetings around the nation on the 12 crops we have identified that will have pilot programs," said Brown.

Crops identified in April included almonds, apricots, cotton, corn, cranberries, nectarines, onions, peaches, rice, soybeans, sugarcane and wheat.Several rice meetings have been added to the list, according to Brown.The meetings are scheduled all over the U.S., according to crops in the area and the timeline for individual crops.

As to a timeline for conducting these meetings across the nation, and actual pilots initiated, there is hope that several will be available for 2002 crop producers.

"Here's the stipulation, I guess.There's no way the work can be done in all of the commodities to get it available for 2002.The Western Cotton Growers' Association and the National Cotton Growers' Association have petitioned USDA and RMA (Risk Management Agency) to get cotton up and going by 2002, because they'd like to have a program working for cotton.So, we have focused all our efforts on cotton for 2002," said Brown.

Considering the losses producers are having in some parts of South Central Texas where the rains destroyed crops ready to harvest, it should be good news that a policy like this may soon be available.

"That's exactly what this is designed for, when they have these catastrophes like that.They have so much cost into their production, at that point, and they really don't have anything to harvest," agreed Brown.

"What that means is that in the western part of the country...in California...I think by about February 15, we have to have a program so that it can be implemented out there.That's about the earliest that it has to be.

"Of course, Texas falls in about March or somewhere along there.That's the focus we have right now, because we have a lot of political support," said Brown.

While Brown said he was not sure of all the terms of present policies, he did note that most of them demand that the producer harvest the crop, no matter what condition, in order to obtain some amount of insurance.

"The current policies, today, require them to harvest whatever they've got in them, and determine what their loss is before they can get any kind of payment.

"This would be the opposite of that.You wouldn't have to harvest, if you didn't want to.You might just plow it under," said Brown.

All of the legislation is already in place for the funding, since the National Congress passed a bill, last June, that would allow for this type of a policy.

"Under the law that was passed last year...the re-vamped insurance law...there were some additional positions added to the FCIC Board, and Bush has not filled those positions, yet...I guess it will probably come from the White House down," said Brown.

"These 12 crops will have pilots programs for them, and they'll beimplemented and we'll sell those insurance policies through the local network of crop insurance agents that are currently out in the field.

"I think that's important for everybody to know...that it's not going to be something new created.It's just whoever sells insurance will still sell it, and the companies who underwrite all this will underwrite this new program."

Brown and the group are hopeful that RMA will add more crops in the next fiscal year, which begins on October 1. He said that, in theory, there are over 200 crops grown in the U.S. that could be covered by this type of a program.

"If the pilot programs work out, there's a process that a pilot program moves into a full-blown policy without any other action by anyone," said Brown.

According to Brown, cattle are not being addressed...at this point...but would/could certainly be considered if producers came together and asked.Also, the help with grain producers will...ultimately...help the livestock producers through the cost of grain.