MANHATTAN, Kan. – Oklahoma could be the first real test. In the face of a total crop failure in wheat country, will Congress finally stand firm on its long-held resolve to quit throwing out its own budget by voting in farm disaster aid?
Since 1980, Congress has made it through only one year without passing an ad hoc disaster aid program. This year could be different, however, because for the 2001 harvest, farmers had an array of crop and revenue insurance choices – all of which had stronger and more equal government support than ever before, said Art Barnaby, economist at Kansas State University.
“Of course, many winter wheat growers in Oklahoma and Kansas would agree they still really need extra help,” he said. “Farmers in states such as North Dakota are having similar problems.
“This combination might not create a big enough coalition in Congress to pass a tax-supported aid program. But Washington’s current balance of power is on a thin edge, and Oklahoma does have very effective representation.
Plus, that delegation could quite truthfully argue that Oklahoma’s losses are unusually severe and crop insurance can’t cover their deductible.”
For many Oklahoma and some Kansas wheat growers, growing conditions are so poor that even insured farms could “generate negative net incomes.” Without disaster aid, their year’s investment and work could just yield more debt, said Barnaby, who is a nationally recognized farm program expert, based with K-State research and extension.
The great majority of winter wheat farmers are insured this year, the economist said. This year’s amount of coverage has set an all-time high. The number of insured acres has been higher only once, in 1995, when catastrophic coverage was required for farm program benefits.
In wheat country – Colorado, Kansas, Nebraska, Oklahoma and Texas – more than 76 percent of all winter wheat plantings are insured. In Oklahoma alone, farmer-selected insurance policies protect 73.5 percent of planted acres. In Kansas, they cover almost 80 percent of the crop.
“Wheat acreage was down in some of those states. But poor planting conditions were an even bigger factor in sending the percentages up from last year’s,” he said. “Washington’s added help in covering premium costs played a part, too. That’s clear in the kinds of policies farmers selected.”
The five states have a record $1.327 billion in coverage on this year’s hard red winter wheat harvest, Barnaby said.
That figure includes a decline in the policies that only protect against yield losses – the minimal catastrophic contract – as well as the traditional multiple peril crop insurance program’s high and low options. More than $1 billion of the year’s coverage reflects a farmer shift to two new revenue insurance products, which insure against both yield- and price-related losses.
The five-state crop revenue coverage sign up jumped 285 percent from last year’s participation level. the region’s new revenue insurance plan sold some 9,000 policies.
This broader and higher participation level doesn’t eliminate all need for disaster aid, however. If nothing else, when the crop is winter wheat, an 80 percent sign up rate can leave millions of acres at risk
In Oklahoma, for example (where USDA weekly crop condition reports are rating the winter wheat as “poor”), 4 million acres are insured. But 1.4 million acres have no protection.
Even with its higher participation rate, Kansas’ wheat crop includes 7.9 million protected acres and 2 million with no insurance, the economist said.
“Besides, when yields are bad, even insured farmers lose money, due to their insurance policy’s ‘deductible.’ Depending on the type of insurance, they may have to swallow a 25 to 35 percent loss in expected yield or wheat revenue before they can have a claim,” he said.
Adding to farmers’ potential setback, some market analysts are now speculating that a smaller U.S. wheat harvest could bring lower, not higher prices. At best, spring’s export sales have been stagnant.
“So the big policy question remains: Will this year’s crop insurance participation provide enough coverage to reduce the need for a disaster aid program?” Barnaby said.
Many experts believe ad hoc disaster aid has been a drag on farmers’ buying crop insurance. They believe disaster aid is generally viewed as “free” insurance.
In the past, Congress tried to offset this “drag” by cutting uninsured farmers’ disaster aid by 5 percent. Yet, it also capped insured farmers’ aid at the amount needed to bring indemnity payments up to 100 percent of “expected” revenue, thus preventing some insured farmers from collecting their full disaster aid payment.
“Plus, uninsured farmers’ reduction often was less than many insured farmers paid in premiums,” Barnaby said. “I imagine many of this year’s winter wheat growers with a failing crop would consider a 5 percent reduction in disaster aid a small price to pay for having decided not to buy crop insurance.”
Other approaches to assigning aid might be less discouraging to future insurance sales.
“Even so, ‘zero’ disaster aid has always been the clearest way for Congress to send the message that growers who can’t afford the financial risk of farming should protect themselves with crop insurance,” Barnaby said. “Of course, for farm state representatives, that idea may sound like a political nightmare.”