Proposed financing plan would provide permanent safety net
By MONETTE TAYLOR | Country World South Central
April 12, 2001 -- At the annual meeting of the Tenth Farm Credit District held in San Antonio, April 4-6, members heard Bob Brown of Farm Credit Bank of Texas explain a new "Cost of Production Insurance Concept."
In 1999, the membership of the National Association of State Departments of Agriculture joined with the Farm Credit Bank of Texas to fund further research on this concept. When this program is implemented, it should replace federal crop insurance throughout the nation.
"It would really be a replacement for crop insurance, because the kind of federal crop insurance we have now doesn't really cover a whole lot, when you get right down to it and receive the money," said Mike Garnett, vice chairman of the Farm Credit Bank of Texas Board of Directors.
The new Cost of Production 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."
"Texas agriculture...we've had droughts, we've had low prices...it's been real difficult for a farmer to stay in business. If it wasn't for the government that comes in with disaster programs and support prices, we would really be in trouble," said Garnett.
"We need to have some kind of a solid program for agriculture and then, if we could just develop our trades. We in the bank are really working, trying to keep the credit out there for the farmers and ranchers so they can continue to operate...it's kind of a balancing act."
"Of course, that's agriculture anywhere in the United States. All have the same trouble. As long as we have a cheap food program in the U.S., we'll keep farmers and ranchers in low spreads and very low incomes. It's a very risky business," added Buddy Cortese, chairman of the board.
In 1999, Jerry Oswalt of Hale County came up with the idea of a cost of production type of insurance that would give the producers more of a "positive" spin on agricultural insurance rather that always be looking toward the "disaster" side. James McCarthy, past chair of the board, liked the idea and the current program started to take shape.
This cost of production program is being designed to compliment the basic insurance program, provide capital preservation, ensure the stability of lending institutions and establish a permanent safety net to producers and those planning on an agriculture career.
"It's not an entitlement program...if you have a disaster here, you can...at least...get back to zero." said Cortese.
The Coalition of American Agricultural Producers (CAAP) was formed as a 20 member talk force and chaired by McCarthy. Louisiana Agriculture and Forestry Commissioner Bob Odem is vice-chairman. Other Tenth District representatives include Brown, Ray Young, Louisiana Land Bank board chairman and Oswalt from the Panhandle-Plains FLBA. The concept was presented to AgriLogic, Inc., a Bryan, Texas economic consulting firm for analysis, headed by Michael D. Fanning.
Once this stage is completed, there is hope that the research and development will began in late spring and identified pilot areas and crops will test the program.
"We have identified the crops that will be researched and we have selected the basic locations for these (pilots). We'll be having meetings in these areas we've identified...in all localities...on a county-wide basis, so any help associations can give us in arranging for those meetings and sponsoring those meetings as they come up will certainly be appreciated.
Research and development in pilot counties will include almonds, apricots, cotton, corn, cranberries, nectarines, onions, peaches, rice, soybeans, sugarcane and wheat. Some of the pilot areas are outside of Texas, but will yield the best information for the research.
The cost of production insurance program would greatly enhance each producer's ability to survive by providing up to 90 percent coverage of the cost of production while limiting the federal government's budget exposure to agriculture.
Producers need to be responsible for 10 percent to "...keep them prudent in management practices, in order to minimize losses he might have in such a program," said Brown.
"Maybe we can move through this process a little faster and we can get this program and make it available in some areas for the 2002 crop year," said Brown.
"In Europe a farmer can have 3-500 acres and make more than we do with 10,000 acres because the government and economic union supports them, " said Cortese. "They put in about 55 billion a year in support for their farmers and there's not near as many of them, whereas in the U.S., we spend about 16 billion a year."
According to CAAP literature available at the meeting, the cost of production is not meant to be a revenue enhancer, but a safety net for producers and banks as well. When this program is activated, it should provide producers with adequate coverage at an affordable price across the U.S. Americans would not become dependent on other countries for food, due to the loss of family farms.
In closing, Brown said,"I've learned to be patient with our government and how it works, and never give up...never give up on our government."
